<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 13, 1996
REGISTRATION NO. 333-14107
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
AMSCAN HOLDINGS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 5110 13-3911462
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
80 GRASSLANDS ROAD
ELMSFORD, NEW YORK 10523
(914) 345-2020
(ADDRESS, INCLUDING ZIP CODE AND TELEPHONE NUMBER, INCLUDING
AREA CODE OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
JAMES M. HARRISON
CHIEF FINANCIAL OFFICER
AMSCAN HOLDINGS, INC.
80 GRASSLANDS ROAD
ELMSFORD, NEW YORK 10523
(914) 345-2020
(NAME, ADDRESS, INCLUDING ZIP CODE AND TELEPHONE NUMBER,
INCLUDING AREA CODE OF AGENT FOR SERVICE)
COPIES OF ALL COMMUNICATIONS, INCLUDING COMMUNICATIONS SENT
TO THE AGENT FOR SERVICE OF PROCESS, SHOULD BE SENT TO:
<TABLE>
<S> <C>
PAUL G. HUGHES, ESQ. ROBERT E. BUCKHOLZ, JR., ESQ.
CUMMINGS & LOCKWOOD SULLIVAN & CROMWELL
FOUR STAMFORD PLAZA, P.O. BOX 120 125 BROAD STREET
STAMFORD, CONNECTICUT 06904-0120 NEW YORK, NEW YORK 10004
(203) 327-1700 (212) 558-4000
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As
promptly as practicable after the effective date of this Registration Statement.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
CROSS REFERENCE SHEET
SHOWING LOCATION IN PROSPECTUS OF INFORMATION REQUIRED BY
ITEMS OF FORM S-1
<TABLE>
<CAPTION>
REGISTRATION STATEMENT ITEM
NUMBER AND HEADING LOCATION IN PROSPECTUS
------------------------------------------ ------------------------------------------
<C> <S> <C>
1. Forepart of Registration Statement and
Outside Front Cover Page of
Prospectus.............................. Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages
of Prospectus........................... Inside Front and Outside Back Cover Pages
of Prospectus
3. Summary Information, Risk Factors and
Ratio of Earnings to Fixed Charges...... Prospectus Summary; Risk Factors
4. Use of Proceeds........................... Use of Proceeds
5. Determination of Offering Price........... Underwriting
6. Dilution.................................. Risk Factors; Dilution
7. Selling Security Holders.................. Not applicable
8. Plan of Distribution...................... Outside Front Cover Page of Prospectus;
Underwriting
9. Description of Securities to be
Registered.............................. Description of the Company's Capital Stock
10. Interest of Named Experts and Counsel..... Validity of Common Stock; Experts
11. Information with Respect to the
Registrant.............................. Prospectus Summary; The Company;
Organization of the Company; Selected
Combined Financial Data; Management's
Discussion and Analysis of Financial
Condition and Results of Operations;
Supplemental Pro Forma Combined
Financial Statements (unaudited);
Business; Management of the Company;
Principal Stockholders; Financial
Statements
12. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities............................. Not applicable
</TABLE>
<PAGE> 3
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN
WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO
REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED DECEMBER 13, 1996
5,350,000 SHARES
LOGO
AMSCAN HOLDINGS, INC.
COMMON STOCK
(PAR VALUE $0.10 PER SHARE)
---------------------
The shares of Common Stock offered hereby are being sold by the Company. A
substantial portion of the net proceeds will be used by the Company to pay
subordinated indebtedness outstanding to the Company's principal stockholder.
See "Use of Proceeds."
Prior to this offering, there has been no public market for the Common
Stock of the Company. It is currently estimated that the initial public offering
price per share will be between $12 and $14. For factors to be considered in
determining the initial public offering price, see "Underwriting."
SEE "RISK FACTORS" ON PAGE 7 FOR CERTAIN CONSIDERATIONS RELEVANT TO AN
INVESTMENT IN THE COMMON STOCK.
The Common Stock has been approved for quotation on The Nasdaq Stock
Market, Inc. under the symbol "AMSN."
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
---------------------
<TABLE>
<CAPTION>
INITIAL PUBLIC UNDERWRITING PROCEEDS TO
OFFERING PRICE DISCOUNT(1) COMPANY(2)
---------------------------------------------------------
<S> <C> <C> <C>
Per Share............................. $ $ $
Total(3).............................. $ $ $
</TABLE>
- ---------------
(1) The Company, certain of its operating subsidiaries and its principal
stockholder have agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933.
(2) Before deducting estimated expenses of $681,500 payable by the Company.
(3) The Company has granted the Underwriters an option for 30 days to purchase
up to an additional 802,500 shares at the initial public offering price per
share, less the underwriting discount, solely to cover over-allotments. If
such option is exercised in full, the total initial public offering price,
underwriting discount and proceeds to the Company will be $ ,
$ and $ , respectively. See "Underwriting."
---------------------
The shares offered hereby are offered severally by the Underwriters, as
specified herein, subject to receipt and acceptance by them and subject to their
right to reject any order in whole or in part. It is expected that certificates
for the shares will be ready for delivery in New York, New York on or about
, 1996, against payment therefor in immediately available funds.
GOLDMAN, SACHS & CO. ALEX. BROWN & SONS
INCORPORATED
---------------------
The date of this Prospectus is , 1996.
<PAGE> 4
[GRAPHIC MATERIAL: PHOTOGRAPHS OF THE COMPANY'S FACILITIES IN
LOUISVILLE, KY, HARRIMAN, NY, CHESTER, NY, ELMSFORD, NY,
TEMECULA, CA, CANADA AND EUROPE.]
The Company intends to furnish its stockholders with annual reports
containing audited financial statements and quarterly reports containing
unaudited financial statements for each of the first three quarters of each
year.
---------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ STOCK MARKET, INC., IN
THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
2
<PAGE> 5
[GRAPHIC MATERIAL: PHOTOGRAPHS OF A SELECTION THE COMPANY'S
PRODUCTS AND THE COMPANY'S LOGO.]
<PAGE> 6
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the combined financial statements (including the notes thereto)
appearing elsewhere in this Prospectus. Unless the context otherwise requires,
references herein to the "Company" refer to Amscan Holdings, Inc., a Delaware
corporation, and each of its subsidiaries, including those in which the Company
owns less than 100% of the capital stock, after the Organization (as defined
herein). Except as otherwise noted, the information contained in this Prospectus
assumes that the Underwriters' over-allotment option is not exercised. See
"Underwriting." The offering of shares of Common Stock described herein is
referred to as the "Offering." References herein to fiscal years are to the
fiscal years of the Company ended December 31 of the year specified.
THE COMPANY
The Company is a designer, manufacturer and distributor of seasonal and
everyday party goods. With a product line consisting of approximately 14,000
stock keeping units ("sku's"), the Company, through its principal subsidiary,
Amscan Inc. and affiliated companies, is a complete source of paper and plastic
party goods, including decorative tableware such as plates, cups, napkins and
tablecovers, accessories such as invitations and balloons, and novelties such as
games and favors. The Company's products are sold in more than 20,000 retail
outlets. The Company is a leading supplier to the emerging party goods
superstore distribution channel, where it has been able to position itself as a
responsive and comprehensive supplier of proprietary, well designed and high
quality products. The Company also distributes its products to discount chains,
mass merchandisers and specialty retailers. During 1995, the Company generated
net sales, income from operations, net income and pro forma net income of $167.4
million, $24.7 million, $17.4 million and $10.8 million, respectively. Net
sales, income from operations, net income and pro forma net income have grown at
a compound annual rate of 21%, 26%, 29% and 28%, respectively, from 1991 to
1995.
The Company strives to be an industry leader in the creation and design of
party goods. An in-house design staff of approximately 60 persons develops and
manages the Company's broad line of party goods for all occasions. The Company
currently offers approximately 200 coordinated product ensembles which enhance
the celebration of seasonal holidays, events such as birthdays and graduations
and general social gatherings, including theme-oriented celebrations such as
Hawaiian luaus and '50's parties. The Company's design staff keeps the Company's
product line contemporary and fresh by introducing new ensembles each year. For
example, in 1996 the Company introduced more than 50 new ensembles.
The Company is a vertically integrated manufacturer, which enables it to
control costs, manage inventory investment and respond quickly to customer
orders. The Company maintains state-of-the-art manufacturing facilities in New
York, Kentucky, Rhode Island and California which produce paper and plastic
plates, napkins and cups. These products account for approximately 50% of the
Company's net sales. Over the past five years, the Company has purchased or
leased new plant and equipment having an aggregate value of approximately $29
million. Products not manufactured directly by the Company are generally
supplied to the Company by independently-owned manufacturers located primarily
in China and elsewhere in the Far East. The Company believes that it has
developed a dependable group of manufacturers capable of producing products
which are consistent with the Company's high standards of quality.
The Company's sales and distribution capabilities are designed to provide a
high level of customer service. A direct employee sales force of approximately
62 sales professionals services over 5,000 retail accounts. In addition to this
seasoned sales team, the Company utilizes a select group of manufacturer
representatives to handle specific account situations. The principal sales and
marketing tool of the Company is its three separate annual catalogues, two for
seasonal products and one for everyday products. Products are distributed from
the Company's distribution centers
2
<PAGE> 7
located principally in New York and California using computer assisted systems
that permit the Company to receive and fill customer orders efficiently and
quickly.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company.......... 5,350,000 shares
Common Stock to be outstanding after the
Offering................................... 22,000,000 shares(1)
Use of Proceeds.............................. To repay subordinated indebtedness
outstanding to the principal stockholder and
other stockholders of the Company and to
repay outstanding indebtedness to
unaffiliated lenders under the Company's
revolving credit agreement. See "Use of
Proceeds."
Proposed Nasdaq Stock Market Symbol.......... "AMSN"
</TABLE>
- ---------------
(1) Does not include 2,000,000 shares of Common Stock reserved for issuance upon
exercise of stock options granted or which may be granted under the
Company's stock option plan.
3
<PAGE> 8
SUMMARY HISTORICAL COMBINED FINANCIAL DATA
This table presents historical, pro forma and supplemental pro forma
combined financial information of Amscan Inc. and Affiliates. The summary
historical information presented below for the years ended December 31, 1991 and
1992 and for the nine months ended September 30, 1995 was derived from the
unaudited combined financial statements of Amscan Inc. and Affiliates as of such
dates. The summary historical financial information presented below for the
years ended December 31, 1993, 1994 and 1995 and for the nine months ended
September 30, 1996 were derived from the audited combined financial statements
of Amscan Inc. and Affiliates as of such dates. The summary historical financial
information should be read in conjunction with the "Selected Historical Combined
Financial Data" and related notes included elsewhere in this Prospectus. The pro
forma and supplemental pro forma data are unaudited and present the effect of
certain events that have occurred or will occur in connection with the
consummation of the Offering and the formation of the Company and should be read
in conjunction with "Selected Historical Combined Financial Data,"
"Capitalization," "Supplemental Pro Forma Combined Financial Statements" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------------------------------------------- ----------------------------------------
SUPPLEMENTAL SUPPLEMENTAL
PRO FORMA PRO FORMA
1991 1992 1993 1994 1995 1995(3) 1995 1996 1996(3)
------- ------- -------- -------- -------- ----------- ----------- ------------- ------------
($ IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales............. $77,263 $86,944 $108,934 $132,029 $167,403 $ 167,403 $ 128,314 $ 147,008 $147,008
Gross profit.......... 27,086 30,379 36,278 45,281 58,749 58,749 46,595 54,147 54,147
Income from
operations(1)....... 9,639 9,892 11,716 14,516 24,669 27,000 21,962 24,372 27,484
Net income............ $ 6,303 $ 7,434 $ 8,455 $ 9,967 $ 17,434 $ 16,765 $ 18,095
======= ======= ======== ======== ======== ======== ========
Pro forma net
income(2)........... $ 4,047 $ 4,466 $ 5,237 $ 6,193 $ 10,762 $ 10,330 $ 10,974
======= ======= ======== ======== ======== ======== ========
Supplemental pro forma
net income(3)....... $ 14,197 $ 14,678
======== ========
Supplemental pro forma
net income per
share............... $ 0.65 $ 0.67
======== ========
Supplemental pro forma
weighted average
common shares
outstanding(4)...... 22,000,000 22,000,000
----------- ------------
----------- ------------
</TABLE>
<TABLE>
<CAPTION>
AT SEPTEMBER 30, 1996
----------------------------------------
ADJUSTED AS
HISTORICAL HISTORICAL(6) ADJUSTED(6)
----------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital........................................................................ $ 2,096 $ 774 $ 64,774
======== ======== ========
Total assets........................................................................... $ 145,753 $ 156,331 $156,331
======== ======== ========
Short-term indebtedness(5)............................................................. $ 86,173 $ 89,573 $ 25,573
Long-term indebtedness(5).............................................................. 12,412 12,412 12,412
-------- -------- --------
Total indebtedness(5).................................................................. $ 98,585 $ 101,985 $ 37,985
======== ======== ========
Stockholders' equity(6)................................................................ $ 24,639 $ 25,227 $ 89,227
======== ======== ========
</TABLE>
4
<PAGE> 9
- ---------------
(1) In each of the five years ended December 31, 1995 and for the nine months
ended September 30, 1995 and 1996, special bonus arrangements totaling $0.1
million, $0.9 million, $1.1 million, $2.2 million, $2.6 million, and $2.4
million and $3.3 million, respectively, existed with certain members of
management. Upon consummation of the Offering, such special profit sharing
arrangements will be substantially modified and replaced by incentives tied
to the value of the Common Stock. See "Management of the Company --
Executive Compensation -- Employment Agreements" and " -- Stock Option
Plan."
(2) Prior to the consummation of the Offering, Amscan Inc. and affiliates
Am-Source, Inc., JCS Realty Corp. and SSY Realty Corp. elected to be taxed
as Subchapter S corporations under the Internal Revenue Code. The pro forma
net income amounts give effect to pro forma income taxes for each of the
periods at statutory rates (40.5%) assuming Amscan Inc., Am-Source, Inc.,
JCS Realty Corp. and SSY Realty Corp. had not elected Subchapter S
corporation status.
(3) Supplemental pro forma net income for 1995 and for the nine months ended
September 30, 1996 is higher than the pro forma net income shown for such
periods due to adjustments described in the notes to the Supplemental Pro
Forma Combined Statement of Operations. See "Supplemental Pro Forma Combined
Financial Statements."
(4) Represents shares expected to be issued and outstanding after the Offering.
See "Capitalization."
(5) Short-term indebtedness consists primarily of the Company's borrowings under
bank lines of credit, current installments of long-term debt and
subordinated debt due to Mr. Svenningsen and other stockholders. As of
September 30, 1996, subordinated debt due to Mr. Svenningsen amounted to
$34.2 million. Long-term indebtedness consists primarily of debt to
third-parties.
(6) Adjusted Historical and As Adjusted balance sheet and stockholders' equity
at September 30, 1996 give effect to certain adjustments as described in the
notes to the Supplemental Pro Forma Combined Balance Sheet. See
"Supplemental Pro Forma Combined Financial Statements."
5
<PAGE> 10
THE COMPANY
The Company is a designer, manufacturer and distributor of seasonal and
everyday party goods. The business of the Company was founded in 1947 to import
and distribute party goods and novelty items. Through internal growth and
selective acquisitions, the Company has become a fully integrated designer,
manufacturer and multinational distributor of party goods. The Company is a
complete source of paper and plastic party goods, including decorative tableware
such as plates, cups, napkins and tablecovers, accessories such as invitations
and balloons, and novelties such as games and favors. The Company's products are
sold in more than 20,000 retail outlets. The Company is a leading supplier to
the emerging party goods superstore distribution channel, where it has been able
to position itself as a responsive and comprehensive supplier of proprietary,
well designed and high quality products. The Company also distributes its
products to discount chains, mass merchandisers and specialty retailers.
The Company was incorporated on October 3, 1996 for the purpose of becoming
the holding company for Amscan Inc. and certain affiliated entities. See
"Organization of the Company." The Company's principal executive offices are
located at 80 Grasslands Road, Elmsford, New York 10523, and its telephone
number is (914) 345-2020.
RISK FACTORS
Prospective purchasers of shares of Common Stock of the Company being
offered hereby should consider carefully the following factors, as well as other
information set forth in the Prospectus, prior to making an investment in the
Common Stock.
IMPORTANCE OF CERTAIN CUSTOMERS
In recent years, there have been significant changes in the manner of
selling party goods at retail. An increasing percentage of party goods is being
sold through party goods superstores rather than through discount chains, mass
merchandisers and specialty retailers. The Company believes that the significant
role of party goods superstores in the sale of party goods will continue to
increase. This concentration of sales could adversely affect sales by the
Company to other party goods retailers such as specialty retailers.
Combined sales to the Company's two largest customers, Party City
Corporation and Party Stores Holdings, Inc., accounted in the aggregate for
approximately 7%, 10% and 17% of the Company's net sales in 1993, 1994 and 1995,
respectively. At December 31, 1995, these two party superstore retailers also
accounted for 12% of the Company's accounts receivable. Although the Company
believes its relationships with these customers to be very good, should either
of them significantly reduce their volume of purchases from the Company, the
Company's financial condition and results of operations could be adversely
affected.
CONCENTRATION OF CREDIT RISK
The concentration of sales of party goods into the party superstore channel
of distribution has resulted in a significant concentration of unsecured trade
receivables with such customers. These retailers are generally privately held
and in recent years have expanded rapidly. While the Company believes that
adequate provisions for bad debts have been made in its financial statements,
should it be unable to collect these receivables to any significant extent, the
Company's financial condition and results of operations would be adversely
affected.
DEPENDENCE ON KEY PERSONNEL
The Company's initial growth and development were largely attributable to
the vision of its Chairman of the Board and Chief Executive Officer, John A.
Svenningsen, and for the past six years have been dependent upon the services of
Gerald C. Rittenberg, President of the Company, and
6
<PAGE> 11
William S. Wilkey, Senior Vice President -- Sales of the Company. The loss of
the services of Messrs. Svenningsen, Rittenberg or Wilkey could have an adverse
effect on the Company's financial condition or results of operations. See
"Management of the Company." The Company does not maintain key-man life
insurance on any of these officers.
In the first quarter of 1996, Mr. Svenningsen was diagnosed with lymphoma.
Since that time, Mr. Svenningsen has been undergoing treatment.
CONTROL BY CERTAIN STOCKHOLDERS
Upon consummation of the Offering, Mr. Svenningsen will be the beneficial
owner of approximately 69% (or 66.6% if the Underwriters' over-allotment option
is exercised in full) of the outstanding shares of Common Stock. Until such
time, if ever, that there is a significant decrease in the percentage of
outstanding shares held by Mr. Svenningsen, Mr. Svenningsen will control the
Company through his ability to determine the outcome of votes of stockholders
regarding, among other things, election of directors and approval of significant
transactions. In addition, executive officers, directors and senior management
of the Company, including Mr. Svenningsen, will beneficially own an aggregate of
approximately 15,842,308 shares or 72.0% (or 69.5% if the Underwriters'
over-allotment option is exercised in full) of the Common Stock after the
Offering. See "Principal Stockholders."
IMPORTANCE OF IDENTIFYING DESIGN TRENDS AND CONSUMER PREFERENCES
In manufacturing and distributing party goods, the Company's success
depends in part on its ability to anticipate the tastes and preferences of party
goods retailers and consumers. The Company's strategy has depended to a
significant extent on the regular introduction of new designs which are
attractive and distinctive. The Company's failure to anticipate, identify or
react appropriately to changes in consumer tastes could, among other things,
lead to excess inventories and significant markdowns or to a shortage of
products, either of which could have an adverse effect on the Company's
financial condition or results of operations.
COMPETITION
The party goods industry is highly competitive. The Company competes with
many other companies, including smaller, independent specialty manufacturers as
well as divisions or subsidiaries of larger companies with greater financial and
other resources than those of the Company. Certain of these competitors control
licenses for widely-recognized images such as cartoon or motion picture
characters, which could provide them with a competitive advantage.
IMPACT OF CHANGING PAPER PRICES
The principal raw material used by the Company in its products is paper,
which accounts for approximately 35% of the cost of the production of the
Company's paper plates, cups and napkins. The price of paper is subject to
change due to numerous factors beyond the control of the Company. Any
significant increase in the cost of paper would adversely affect the Company's
raw material costs. Competitive conditions will determine how much of paper
price increases can be passed on by party goods retailers to the ultimate
consumers of the Company's products. If the Company is unable to pass future
paper price increases to the party goods retailers, the Company's financial
condition and results of operations would be adversely affected.
RISKS ASSOCIATED WITH FUTURE EXPANSION THROUGH ACQUISITIONS
The Company has, from time to time, expanded its product line as well as
further vertically integrated its operations, through strategic acquisitions.
The Company may pursue additional acquisitions of complementary businesses which
the Company believes may further these strategic objectives. There can be no
assurance that the Company will be able to locate suitable acquisition
7
<PAGE> 12
candidates, make such acquisitions on acceptable terms or effectively and
profitably integrate such acquisitions with its existing operations. Moreover,
to the extent Common Stock is issued to effect an acquisition, such issuance
could result in dilution to the Company's stockholders, and any additional
indebtedness incurred to pay for acquisition costs could adversely affect the
Company's liquidity and results of operation.
ABSENCE OF PUBLIC MARKET FOR THE COMMON STOCK; POSSIBLE VOLATILITY OF STOCK
PRICE
Prior to the Offering, there has been no public market for the Common
Stock. There can be no assurance that an active public market for the Common
Stock will develop or be sustained after the Offering. The initial public
offering price will be determined by negotiations between the Company and the
representatives of the Underwriters and may bear no relationship to the market
price of the Common Stock after the Offering. See "Underwriting." Subsequent to
the Offering, prices for the Common Stock will be determined by the market and
may be influenced by a number of factors, including the Company's operating
results, the depth and liquidity of the market for the Common Stock, investor
perceptions of the Company, the party goods industry in general and general
economic conditions.
ABSENCE OF DIVIDENDS
The Company does not intend to pay cash dividends on the Common Stock for
the foreseeable future. The Company is a holding company with no business
operations of its own. The Company therefore is dependent upon payments,
dividends and distributions from its subsidiaries for funds to pay its expenses
and to pay future cash dividends or distributions, if any, to holders of the
Common Stock. The Company currently intends to retain any earnings for working
capital, repayment of indebtedness, capital expenditures and general corporate
purposes. The revolving credit agreement to which the Company's principal
subsidiary is a party prohibits the payment by such subsidiary of any cash
dividends.
ANTI-TAKEOVER EFFECT OF CERTAIN CHARTER, CHANGE OF CONTROL AND STATUTORY
PROVISIONS
The Company's Certificate of Incorporation and By-Laws contain certain
provisions that may have the effect of substantially deterring a future takeover
of the Company. These provisions vest more power in the Company's Board of
Directors with respect to takeovers of the Company than applicable state
anti-takeover laws and are designed to encourage a potential acquiror to enter
into negotiations with the Company's Board of Directors. See "Description of the
Company's Capital Stock -- Certain Provisions of Delaware Law and the Company's
Certificate of Incorporation and By-Laws."
COMMON STOCK ELIGIBLE FOR FUTURE SALE
Upon consummation of the Offering, 22,000,000 shares of Common Stock will
be outstanding. Of these shares, the 5,350,000 shares sold in the Offering will
be freely transferable without restriction under the Securities Act of 1933, as
amended (the "Securities Act"), unless purchased by "affiliates" of the Company
as that term is defined in Rule 144 under the Securities Act. In addition,
approximately 230,769 shares of the shares of Common Stock (based on the
mid-point of the range of public offering prices set forth on the cover page of
this Prospectus) outstanding will be owned by the Company's Employee Stock
Ownership Plan (the "ESOP") or issued to domestic employees in connection with
stock bonuses. See "Shares Eligible for Future Sale." The remaining 16,419,231
outstanding shares of Common Stock held by existing stockholders, in addition to
the shares owned by the ESOP, will be "restricted securities" as that term is
defined in Rule 144, which are eligible for sale in the public market in
compliance with Rule 144 (including limits on the number of shares which may be
sold within specified periods). Three months after any such stockholder ceases
to be an "affiliate" of the Company, all of such shares held for more than three
years would then immediately become eligible for public sale without the
limitations of Rule 144. Subject to
8
<PAGE> 13
certain exceptions, the Company, John A. Svenningsen (who beneficially owns
15,182,308 shares of Common Stock) and the SSY Trusts (as defined below) have
agreed with the representatives of the Underwriters that they will not offer,
sell, contract to sell or otherwise dispose of any securities of the Company
including, but not limited to any securities that are exercisable or
exchangeable for, that represent the right to receive or that are convertible
into or whose exercise or settlement price is derivable from the price of, the
Common Stock or any substantially similar securities for a period of 180 days
after the date of this Prospectus without the prior written consent of the
representatives of the Underwriters. See "Principal Stockholders" and
"Underwriting." In addition, Mr. Rittenberg has agreed that he will not sell
shares of Common Stock received in the Organization for a period of 12 months
from the date of receipt of such shares except for transfers to Mr. Svenningsen
to repay certain indebtedness and except for gifts. The Company has granted
certain stockholders a one-time right to demand registration of the offer and
sale of their Common Stock under the Securities Act. Any such demand may not be
exercised earlier than one year from the date hereof. See "Shares Eligible for
Future Sale."
No prediction can be made as to the effect, if any, that future sales of
shares of Common Stock or the availability of shares of Common Stock for future
sale would have on the market price of the Common Stock prevailing from time to
time. Sales of substantial amounts of Common Stock in the public market
following the Offering, or the perception that such sales could occur, could
have an adverse effect on prevailing market prices for the Common Stock.
DILUTION
Purchasers of Common Stock in the Offering will incur immediate and
substantial dilution of $9.29 (based on the mid-point of the range of public
offering prices set forth on the cover page of this Prospectus) in the net
tangible book value per share of the Common Stock from the initial public
offering price as compared to the increase in net tangible book value per share
that will accrue to existing stockholders. See "Dilution."
ORGANIZATION OF THE COMPANY
The Company was organized on October 3, 1996 for the purpose of becoming
the holding company for businesses previously conducted by the Company's
principal subsidiary Amscan Inc. and certain affiliated companies (Amscan Inc.,
together with such affiliated companies, the "Operating and Real Estate
Companies"). In connection with the Company's formation, John A. Svenningsen,
the Company's founder, purchased 1,000 shares of Common Stock from the Company
for $100 thereby becoming its sole stockholder. Mr. Svenningsen's purchase of
such shares was made solely to facilitate the organization of the Company.
The Operating and Real Estate Companies include companies previously owned
and independently controlled by Mr. Svenningsen, including Amscan Inc., Trisar,
Inc., which manufactures and distributes certain of the Company's products,
Amscan Distributors (Canada) Ltd. and Amscan Svenska AB, each of which is
engaged in the distribution of the Company's products, and JCS Realty Corp.
which is a holding company for certain real estate leased to the Company for use
in the operation of its business. The Operating and Real Estate Companies also
include companies in which Mr. Svenningsen owned less than 100% of the capital
stock, including, Am-Source, Inc., the Company's supplier of plastic plates,
cups and bowls, certain companies located in Great Britain, Australia, Germany
and Mexico engaged in the distribution of the Company's products and SSY Realty
Corp., which is a holding company for certain real estate leased to the Company.
The organization of the Company (the "Organization") encompasses consummation of
the transactions contemplated by three agreements to which the Company is a
party and which are summarized below.
The first of these agreements is among the Company, Mr. Svenningsen, Gerald
C. Rittenberg and certain trusts established for the benefit of Mr.
Svenningsen's children (the "SSY Trusts").
9
<PAGE> 14
Pursuant to this agreement, Mr. Svenningsen, Mr. Rittenberg and the SSY Trusts
exchanged all of the outstanding capital stock which they owned in the Operating
and Real Estate Companies including Amscan Inc. for shares of Common Stock of
the Company and, in the case of Mr. Svenningsen, cash in the aggregate amount of
$133,000. For purposes of this exchange, Mr. Svenningsen and the representatives
of the Underwriters determined the value of the Company based on their
preliminary assessment of the factors set forth under "Underwriting." The number
of shares of Common Stock issued to Mr. Svenningsen was determined by him using
such value and the midpoint of the estimated range of the initial public
offering price. The number of shares issued to Mr. Svenningsen took into account
the value of Am-Source, Inc. based on the arm's length negotiations with the
stockholders of Am-Source, Inc. other than Mr. Svenningsen, the shares issued to
Mr. Rittenberg pursuant to the agreement described below, the shares issued to
the SSY Trusts and the shares to be issued to the ESOP or in payment of stock
bonuses.
Based on the aggregate value of the Company as determined by Mr.
Svenningsen and the value of the shares of Common Stock issued in exchange
therefor being $13 per share (the mid-point of the range of the initial public
offering prices set forth on the cover page of this Prospectus), Mr. Svenningsen
received an aggregate of 15,053,736 shares of Common Stock of the Company (which
number includes the 1,000 shares of Common Stock issued to Mr. Svenningsen in
connection with the formation of the Company) and $133,000 in cash. An
additional 230,769 shares of Common Stock which otherwise would have been issued
to Mr. Svenningsen in the Organization will be issued to the ESOP or in payment
of stock bonuses based on an aggregate value of $3 million. 128,572 and 660,000
shares of Common Stock were issued to the SSY Trusts and Mr. Rittenberg,
respectively. The transactions contemplated by this agreement among the Company,
Mr. Svenningsen, Mr. Rittenberg and the SSY Trusts described above were
consummated immediately prior to the date hereof.
The second of these agreements is between the Company and the stockholders
of Am-Source, Inc. other than Mr. Svenningsen pursuant to which such
stockholders exchanged all of the outstanding capital stock of Am-Source, Inc.
which they owned for shares of Common Stock. The number of shares of Common
Stock issued in this exchange was determined by dividing $7.5 million,
determined in an arm's-length negotiation among the parties to be the aggregate
value of such stockholders' shares of the capital stock of Am-Source, Inc., by
the initial public offering price of $13 (the mid-point of the range of the
initial public offering prices set forth on the cover page of this Prospectus)
for an aggregate of 576,923 shares of Common Stock. The exchange of shares of
the capital stock of Am-Source, Inc. by such stockholders occurred immediately
prior to the date hereof.
The third agreement is among Amscan Inc., John A. Svenningsen and Gerald C.
Rittenberg. Pursuant to this agreement, Mr. Rittenberg relinquished certain
rights under a previous employment agreement, dated November 27, 1991, entered
into between Amscan Inc. and Mr. Rittenberg including, the right to receive (a)
a bonus in an amount equal to 10% of the aggregate net profits of Amscan Inc.
and certain affiliates (as defined in the agreement), (b) 5% of the net selling
price upon the sale of Amscan Inc. or the sale by Mr. Svenningsen of
substantially all of his stock in Amscan Inc. and (c) in the event of an initial
public offering of the stock of Amscan Inc., shares of the stock of Amscan Inc.
equal to 5% of the shares of stock of Amscan Inc. issued and outstanding
immediately following the consummation of such initial public offering. In
exchange for the relinquishment of such rights, Mr. Rittenberg received a cash
payment of $3.4 million and a number of shares of stock of Amscan Inc., which
shares he exchanged for 660,000 shares of Common Stock, representing 3% of the
shares of Common Stock to be outstanding upon consummation of the Offering
(assuming no exercise of the Underwriters' over-allotment option) valued at
$8,580,000 based on an initial public offering price of $13 (the mid-point of
the range of the initial public offering prices set forth on the cover page of
this Prospectus). To the extent that the net proceeds from the Offering
(including any net proceeds of the exercise of the Underwriters' over-allotment
option) exceeds $69 million, Mr. Rittenberg will be entitled to an additional
cash payment equal to 5% of
11
<PAGE> 15
such excess. For a description of the terms of the agreement relating to Mr.
Rittenberg's continued employment by the Company, see "Management of the
Company -- Executive Compensation -- Employment Agreements."
The shares of Common Stock of the Company acquired by Mr. Svenningsen, the
SSY Trusts, the other stockholders of Am-Source, Inc. and Mr. Rittenberg
pursuant to these agreements constitute all of the issued and outstanding Common
Stock of the Company prior to consummation of the Offering.
Concurrently with the consummation of the transactions contemplated by the
agreements described above, the status of Amscan Inc., Am-Source, Inc., JCS
Realty Corp. and SSY Realty Corp., as Subchapter S corporations under the
Internal Revenue Code was terminated. Amscan Inc. has been treated for income
tax purposes as a Subchapter S corporation since 1986 and Am-Source, Inc., JCS
Realty Corp. and SSY Realty Corp. have been treated for income tax purposes as
Subchapter S corporations since incorporation. As a result, each of such
companies' stockholders prior to the Organization were required to pay taxes
based on the earnings of such companies, respectively, whether or not such
amounts had been distributed to such stockholders.
For a number of years and until the consummation of the Organization,
Amscan Inc., Am-Source, Inc., JCS Realty Corp. and SSY Realty Corp. made
periodic distributions to Mr. Svenningsen, as a stockholder of such companies,
in amounts approximately equal to Mr. Svenningsen's tax liabilities associated
with such companies' earnings, plus, in the case of Amscan Inc., Mr.
Svenningsen's living expenses. The portion of the earnings of Amscan Inc., Am-
Source, Inc., JCS Realty Corp. and SSY Realty Corp. owed to but not distributed
to Mr. Svenningsen were, with Mr. Svenningsen's consent, retained by Amscan
Inc., Am-Source, Inc., JCS Realty Corp. and SSY Realty Corp., respectively, as
working capital. Prior to the date hereof, all of such accumulated undistributed
earnings as well as dividends of accumulated earnings and capital contributions
were converted to subordinated debt owed to Mr. Svenningsen by the Company. Such
subordinated debt due to Mr. Svenningsen, in the amount of approximately $37
million, will be paid with a portion of the net proceeds of the Offering. See
"Use of Proceeds" and "Capitalization."
Am-Source, Inc. also made periodic distributions to each of the
stockholders of Am-Source, Inc. other than Mr. Svenningsen until the
consummation of the Organization, in amounts approximately equal to such
stockholders' tax liabilities associated with Am-Source, Inc.'s earnings. The
portion of Am-Source, Inc.'s accumulated earnings owed to but not distributed to
such Am-Source, Inc. stockholders were, with their consent, retained by
Am-Source, Inc. as working capital. Prior to the date hereof, all of such
accumulated undistributed earnings and undistributed earnings since September
30, 1996 were converted to subordinated debt owed to such previous stockholders
of Am-Source, Inc. by the Company. The subordinated debt owed to such
stockholders other than Mr. Svenningsen (approximately $2.0 million) will be
paid with a portion of the net proceeds of the Offering. See "Use of Proceeds"
and "Capitalization."
Upon the termination of the Subchapter S corporation status of Amscan Inc.,
Am-Source, Inc., JCS Realty Corp. and SSY Realty Corp., such companies became
subject to federal and state income taxes. The pro forma net income amounts and
the Supplemental Pro Forma Combined Statements of Operations set forth in this
Prospectus have been adjusted to include pro forma federal income tax provisions
as if Amscan Inc., Am-Source, Inc., JCS Realty Corp. and SSY Realty Corp. had
been Subchapter C corporations under the Internal Revenue Code during the
relevant periods.
11
<PAGE> 16
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of the shares
offered hereby are estimated to be $64,000,000 ($73,702,000 if the Underwriters'
over-allotment option is exercised in full), assuming a public offering price of
$13 per share (the mid-point of the range of the initial public offering prices
set forth on the cover page of this Prospectus) and after deducting estimated
underwriting discounts and other expenses of the Offering payable by the
Company.
Approximately $39 million of the net proceeds to the Company (representing
$35.9 million payable as of September 30, 1996 as reflected in Amscan Inc. and
Affiliates Combined Balance Sheet and $3.1 million of estimated distributable
earnings between September 30, 1996 and the consummation of the Offering), will
be used to repay certain subordinated indebtedness owed by the Company to Mr.
Svenningsen and the other stockholders of Am-Source, Inc. Such indebtedness
represents dividends and distributions declared but not paid by Amscan Inc.,
Am-Source, Inc., JCS Realty Corp. and SSY Realty Corp. to Mr. Svenningsen and by
Am-Source, Inc. to its other stockholders over a number of years while Amscan
Inc., Am-Source, Inc., JCS Realty Corp. and SSY Realty Corp. were Subchapter S
corporations. The balance of $25 million of the net proceeds will be used by the
Company to repay outstanding indebtedness to unaffiliated lenders under the
Company's revolving credit agreement, which indebtedness includes amounts
borrowed to make a one-time cash payment in the amount of $3.4 million to Mr.
Rittenberg under his employment agreement. See "Management of the
Company -- Executive Compensation -- Employment Agreements." An affiliate of one
of the underwriters is a lender under the revolving credit agreement. See
"Underwriting." The Company's subordinated indebtedness to Mr. Svenningsen and
the stockholders of Am-Source, Inc. bears interest at prime (which at September
30, 1996 was 8.25%), plus 0.5%, and has no fixed maturity. The Company's
indebtedness to unaffiliated lenders under its revolving credit agreement bears
interest at an average rate of 6.8% and matures in September 2000.
12
<PAGE> 17
CAPITALIZATION
The following table sets forth (i) the actual short-term indebtedness and
total capitalization of the Company at September 30, 1996, (ii) the adjustments
giving effect to the transactions described in "Organization of the Company" as
if they had been completed at that date and (iii) the pro forma short-term
indebtedness and total capitalization as adjusted to give effect to the Offering
at an assumed initial public offering price of $13 per share (the mid-point of
the range of initial public offering prices set forth on the cover page of this
Prospectus) and the application of the proceeds as set forth under "Use of
Proceeds."
<TABLE>
<CAPTION>
ADJUSTED AS
HISTORICAL HISTORICAL(1) ADJUSTED(1)
---------- ------------ --------------
($ IN THOUSANDS)
<S> <C> <C> <C>
Short-term and long-term indebtedness:
Loans payable........................................ $ 47,955 $ 51,355 $ 23,255
Long-term indebtedness, including current portion.... 14,730 14,730 14,730
Subordinated and other indebtedness to
stockholders...................................... 35,900 35,900 --
-------- -------- --------
Total indebtedness................................ 98,585 101,985 37,985
-------- -------- --------
Stockholders' equity:
Common stock......................................... 393 1,665 2,200
Additional paid-in capital........................... 1,490 19,211 82,676
Retained earnings.................................... 23,490 4,998 4,998
Cumulative translation adjustment.................... (647) (647) (647)
Treasury stock....................................... (87) -- --
-------- -------- --------
Total stockholders' equity........................ 24,639 25,227 89,227
-------- -------- --------
Total capitalization................................... $ 123,224 $127,212 $127,212
======== ======== ========
</TABLE>
- ---------------
(1) "Adjusted Historical" and "As Adjusted" balance sheet at September 30, 1996
give effect to certain adjustments as described in the notes to the
Supplemental Pro Forma Combined Balance Sheet in the "Supplemental Pro
Forma Combined Financial Statements."
14
<PAGE> 18
DILUTION
At September 30, 1996, the Company's net tangible book value was
approximately $24.6 million or $1.48 per share ($17.7 million and $1.06,
respectively on an "Adjusted Historical" basis) of Common Stock (based upon
16,650,000 shares representing the shares issued in the Organization). See
"Organization of the Company" and Supplemental Pro Forma Balance Sheet in the
"Supplemental Pro Forma Combined Financial Statements." Net tangible book value
per share represents the amount of total tangible assets of the Company reduced
by the amount of total liabilities, divided by the number of shares of Common
Stock.
After giving effect to the Offering and the application of proceeds
therefrom, the net tangible book value at September 30, 1996 would have been
approximately $81.7 million or $3.71 per share, representing an immediate
increase in net tangible book value of $57.1 million or $2.59 per share and an
immediate dilution of $9.29 per share to new investors. The following table
illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share................... $13.00
Net tangible book value at September 30, 1996..................... $1.48
Increase attributable to price paid by investors in the
Offering........................................................ 2.23
-----
Adjusted net tangible book value per share after giving effect to
the Offering.................................................... 3.71
------
Dilution in net tangible book value per share to new investors in
the Offering.................................................... $ 9.29
======
</TABLE>
15
<PAGE> 19
SELECTED HISTORICAL COMBINED FINANCIAL DATA
The selected data presented below under the captions "Income Statement
Data" and "Balance Sheet Data" for, and as of the end of, each of the years in
the three-year period ended December 31, 1995 and as of and for the nine months
ended September 30, 1996, are derived from the combined financial statements of
Amscan Inc. and Affiliates which financial statements have been audited by KPMG
Peat Marwick LLP, independent certified public accountants. The combined
financial statements as of December 31, 1994 and 1995 and September 30, 1996,
and for each of the years in the three-year period ended December 31, 1995 and
for the nine months ended September 30, 1996, and the reports thereon, are
included elsewhere in this Prospectus. The selected data presented below under
the captions "Income Statement Data" and "Balance Sheet Data" for December 31,
1991 and December 31, 1992, and for each of the years then ended, and for the
nine-month period ended September 30, 1995, are derived from unaudited combined
financial statements of Amscan Inc. and Affiliates and include, in the opinion
of management, all adjustments (consisting only of normal recurring adjustments)
necessary to present fairly the combined financial position and results of
operations for such periods. The results of operations for the nine months ended
September 30, 1996 are not necessarily indicative of results to be expected for
the year ending December 31, 1996. The selected combined financial data should
be read in conjunction with Amscan Inc. and Affiliates' Combined Financial
Statements and the related notes thereto included elsewhere in this Prospectus,
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations." The pro forma and supplemental pro forma data are unaudited and
intended to present the effect of certain events that have occurred or will
occur in connection with the consummation of the Offering and the Organization
and should be read in conjunction with "Supplemental Pro Forma Combined
Financial Statements" and notes thereto contained elsewhere in this Prospectus.
16
<PAGE> 20
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------------------------ --------------------
1991 1992 1993 1994 1995 1995 1996
------- ------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
($ IN THOUSANDS, EXCEPT SHARE AMOUNTS)
INCOME STATEMENT DATA:
Net sales................... $77,263 $86,944 $108,934 $132,029 $167,403 $128,314 $147,008
Cost of sales............... 50,177 56,565 72,656 86,748 108,654 81,719 92,861
------- ------- -------- -------- -------- -------- --------
Gross profit................ 27,086 30,379 36,278 45,281 58,749 46,595 54,147
Selling expenses............ 6,967 8,770 9,780 11,309 12,241 8,893 8,691
General and administrative
expenses.................. 8,671 9,316 11,080 14,460 15,002 10,395 14,113
Art and development......... 1,709 1,551 2,596 2,796 4,256 2,936 3,671
Special bonuses(1).......... 100 850 1,106 2,200 2,581 2,409 3,300
------- ------- -------- -------- -------- -------- --------
Income from operations...... 9,639 9,892 11,716 14,516 24,669 21,962 24,372
Interest expense, net....... 2,787 2,092 2,304 3,843 5,772 4,386 4,569
Other (income)/expense,
net....................... (141) 16 308 82 (309) (409) (301)
------- ------- -------- -------- -------- -------- --------
Income before income taxes
and minority interests.... 6,993 7,784 9,104 10,591 19,206 17,985 20,104
Income taxes................ 617 297 348 464 731 498 767
Minority interests.......... 73 53 301 160 1,041 722 1,242
------- ------- -------- -------- -------- -------- --------
Net income.................. $ 6,303 $ 7,434 $ 8,455 $ 9,967 $ 17,434 $ 16,765 $ 18,095
======= ======= ======== ======== ======== ======== ========
PRO FORMA ADJUSTMENTS:
Net income, as above...... $ 6,303 $ 7,434 $ 8,455 $ 9,967 $ 17,434 $ 16,765 $ 18,095
Income taxes(2)........... 2,256 2,968 3,218 3,774 6,672 6,435 7,121
------- ------- -------- -------- -------- -------- --------
Pro forma net income(2)... $ 4,047 $ 4,466 $ 5,237 $ 6,193 $ 10,762 $ 10,330 $ 10,974
======= ======= ======== ======== ======== ======== ========
SUPPLEMENTAL PRO FORMA
DATA(3):
Income from operations.... $ 27,000 $ 27,484
Interest expense, net..... 3,086 2,467
Other (income), net....... (309) (301)
-------- --------
Income before income taxes
and minority
interests............... 24,223 25,318
Income taxes.............. 9,912 10,536
Minority interests........ 114 104
-------- --------
Net income................ $ 14,197 $ 14,678
======== ========
Supplemental pro forma net
income per share(3)....... $ 0.65 $ 0.67
======== ========
Pro forma weighted average
common shares
outstanding(4)............ 22,000,000 22,000,000
-------- --------
-------- --------
</TABLE>
<TABLE>
<CAPTION>
AT SEPTEMBER 30, 1996
AT DECEMBER 31, --------------------------------------
-------------------------------------------------- ADJUSTED AS
1991 1992 1993 1994 1995 HISTORICAL HISTORICAL(6) ADJUSTED(6)
------- ------- -------- -------- -------- ---------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital..... $ 5,202 $ 7,765 $ 4,730 $ (438) $ 8,383 $ 2,096 $ 774 $ 64,774
======= ======= ======== ======== ======== ======== ========== ==========
Total assets........ $56,978 $60,652 $ 80,090 $ 93,884 $114,601 $ 145,753 $ 156,331 $ 156,331
======= ======= ======== ======== ======== ======== ========== ==========
Short-term
indebtedness(5)... $22,070 $25,993 $ 37,271 $ 50,869 $ 58,541 $ 86,173 $ 89,573 $ 25,573
Long-term
indebtedness(5)... 11,728 11,116 11,852 8,800 12,284 12,412 12,412 12,412
------- ------- -------- -------- -------- ---------- ------------- -----------
Total
indebtedness(5)... $33,798 $37,109 $ 49,123 $ 59,669 $ 70,825 $ 98,585 $ 101,985 $ 37,985
======= ======= ======== ======== ======== ======== ========== ==========
Stockholders'
equity(6)......... $14,467 $15,550 $ 18,496 $ 20,820 $ 27,205 $ 24,639 $ 25,227 $ 89,227
======= ======= ======== ======== ======== ======== ========== ==========
</TABLE>
17
<PAGE> 21
- ---------------
(1) In each of the five years ended December 31, 1995 and for the nine months
ended September 30, 1995 and 1996, special bonus arrangements existed with
certain members of management. Upon consummation of the Offering, such
special profit sharing arrangements will be substantially modified and
replaced by incentives tied to the value of the Common Stock. See
"Management of the Company -- Executive Compensation -- Employment
Agreements" and "-- Stock Option Plan."
(2) Prior to the consummation of the Offering, Amscan Inc., Am-Source, Inc., JCS
Realty Corp. and SSY Realty Corp. elected to be taxed as Subchapter S
corporations under the Internal Revenue Code. The pro forma net income
amounts give effect to pro forma income tax amounts for each of the periods
shown at statutory rates (40.5%) assuming Amscan Inc., Am-Source, Inc., JCS
Realty Corp. and SSY Realty Corp. had not elected Subchapter S corporation
status.
(3) Supplemental pro forma adjustments result in supplemental pro forma net
income for 1995 and for the nine months ended September 30, 1996 being
higher than the pro forma net income shown for such periods due to
adjustments described in the notes to the Supplemental Pro Forma Combined
Statement of Operations. See "Supplemental Pro Forma Combined Financial
Statements."
(4) Represents shares expected to be issued and outstanding after the Offering.
See "Capitalization."
(5) Short-term indebtedness consists primarily of the Company's borrowings under
bank lines of credit, current installments of long-term debt and
subordinated debt due to Mr. Svenningsen and other stockholders. As of
September 30, 1996, subordinated debt due to Mr. Svenningsen amounted to
$34.2 million. Long-term indebtedness consists primarily of debt to third
parties.
(6) Adjusted Historical and As Adjusted balance sheet and stockholders' equity
at September 30, 1996 give effect to certain adjustments as described in
the notes to the Supplemental Pro Forma Combined Balance Sheet. See
"Supplemental Pro Forma Combined Financial Statements."
18
<PAGE> 22
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The party goods industry has experienced significant changes in both
distribution channels and product offering over the last several years. The
retail distribution of party goods has begun to shift from smaller independent
stores and designated departments within drug, discount or department store
chains to superstores dedicated to retailing party goods. In part due to the
success of the superstore channel, party goods manufacturers broadened their
product lines to support the celebration of a greater number of occasions. The
industry's growth has been directly affected by these changes.
The Company's revenues have increased from approximately $108.9 million in
1993 to $167.4 million in 1995, a compound annual growth rate of approximately
24%. The Company attributes this growth to its ability to create a broad range
of unique and innovative designs for its products and to work closely with its
customers to market and merchandise its products to consumers. In particular,
the Company experienced significant growth with its superstore customers.
Between 1993 and 1995, sales to party superstore customers increased from $27.7
million to $63.4 million, a 51% compound annual growth rate.
Revenues are generated from the sales of approximately 14,000 sku's
consisting of paper and plastic tableware, accessories and novelties for all
occasions. Tableware (plates, cups, napkins, tablecovers and cutlery) is the
Company's core product category, generating approximately 60% of revenues in
1995. Coordinated accessories (e.g., balloons and banners) and novelties (e.g.,
party favors) are offered to complement the Company's tableware products. To
serve its customers better, the Company has made significant additions to its
product line. Through increased spending on internal product development as well
as through acquisitions, the Company has had a net increase of approximately
6,300 sku's since 1991. Revenue growth primarily has been the result of
increased orders from its superstore customers (new stores and increased
same-store sales), increased international sales and price increases.
The Company's gross profit is influenced by its product mix and paper
costs. Products manufactured by the Company, primarily tableware, represented
approximately 50% of the Company's 1995 sales. The Company has made significant
additions to its manufacturing capacity which have allowed it to improve gross
margins. The Company believes that its manufacturing capabilities enable it to
lower product cost, ensure product quality and be more responsive to customer
demands. Paper represents approximately 35% of the cost of the Company's paper
tableware. The Company has historically been able to adjust its prices in
response to changes in paper prices.
FINANCIAL IMPACT OF ORGANIZATION OF THE COMPANY
In connection with the Offering and the Organization certain events have
occurred or will occur which will affect the financial position and results of
the Company. The following is a discussion of these events and the related
financial impact.
ORGANIZATION OF FOUNDER'S INTERESTS
The Company has been formed for the purpose of becoming the holding company
for the businesses previously conducted by Amscan Inc., certain affiliated
companies individually owned and independently controlled by Mr. Svenningsen,
and certain affiliated companies less than 100% owned by Mr. Svenningsen,
including Am-Source, Inc., the Company's supplier of plastic plates, cups and
bowls. The transfer of his ownership in these companies in exchange for shares
of Common Stock of the Company will be accounted for in a manner similar to a
pooling of interests and, as such, the historical cost basis of the accounts
will be carried over thereby not giving rise to any goodwill. See "Organization
of the Company."
19
<PAGE> 23
During the periods presented, a business which was not material to the
combined business of the Company was acquired by Mr. Svenningsen and
subsequently disposed of. The associated balance sheet, statements of operations
and loss on disposition of the business are insignificant and have been excluded
from the accompanying combined financial statements.
ACQUISITION OF AM-SOURCE, INC.
The Company and the stockholders of Am-Source, Inc., other than Mr.
Svenningsen, have entered into an agreement pursuant to which such stockholders
have agreed to transfer their ownership in Am-Source, Inc. in exchange for
shares of Common Stock. The transaction will be accounted for as the purchase of
the 50% ownership of Am-Source, Inc. not currently owned and will give rise to
approximately $7.5 million of goodwill, which will be amortized over 30 years.
TERMINATION OF PRIOR EMPLOYMENT AGREEMENTS
Pursuant to an agreement between Amscan Inc. and Gerald C. Rittenberg, the
Company's President, Mr. Rittenberg has entered into a new employment agreement,
effective upon consummation of the Offering for a period of three years at a
base compensation of approximately $220,000 per year to be increased annually by
5%. Mr. Rittenberg has also agreed that his existing employment agreement will
terminate upon consummation of the Offering. The agreement which will be
terminated provided for Mr. Rittenberg to receive bonuses equal to approximately
10% of the aggregate net profits of Amscan Inc. and certain affiliates (as
defined in the agreement) in each of the next three years and an amount equal to
5% of the value of Amscan Inc. in the event of a change in control or an initial
public offering. In exchange for relinquishing these rights, Mr. Rittenberg will
receive a special one-time payment of approximately $3.4 million in cash and
shares of Common Stock of the Company equal to 3% of the total shares
outstanding (excluding any shares which might be issued upon exercise of the
Underwriters' over-allotment option) immediately following the Offering. The
aggregate value to be paid to Mr. Rittenberg in cash and stock is $12.0 million,
assuming an initial public offering price of $13 per share (the mid-point of the
range of the initial public offering prices set forth on the cover page of this
Prospectus). In addition, to the extent that the net proceeds of the Offering
(including any net proceeds of the exercise of the Underwriters' over-allotment
option) exceeds $69 million, Mr. Rittenberg will be entitled to an amount equal
to 5% of such excess. See "Management of the Company -- Executive
Compensation -- Employment Agreements."
During the periods presented, certain other executives also had employment
agreements which entitled them to receive a percentage of the pre-tax profits.
These arrangements for Mr. Rittenberg and such other executives between 1993 and
1995 ranged from 18% to 20% of pre-tax profits in the aggregate. In conjunction
with the Offering, these agreements have been substantially modified and these
bonus arrangements replaced by a combination of specific incentive plans and/or
cash payments and stock option grants. The aggregate of the special bonuses to
Mr. Rittenberg and the other executives and senior managers were $1.1 million,
$2.2 million and $2.6 million for the years ended December 31, 1993, 1994 and
1995, respectively. See "Management of the Company -- Executive
Compensation -- Employment Agreements."
ESTABLISHMENT OF AN EMPLOYEE STOCK OWNERSHIP PLAN AND PAYMENT OF STOCK BONUSES
In conjunction with the Offering, the Company will be establishing the ESOP
for the benefit of its domestic employees. At the Offering, there will be a
special one-time contribution of 230,769 shares of Common Stock of the Company
to the ESOP, subject to reduction as described in the next sentence, to be
allocated to participant accounts based upon a formula which is weighted based
upon both years of service and compensation. To the extent that application of
this formula would result in a contribution to the ESOP on behalf of a
participant which would exceed the maximum contribution permitted under
applicable law, the contribution to the ESOP for such participant will be
reduced to the maximum permitted and the balance determined under the formula
will be paid to
20
<PAGE> 24
such participant in the form of a stock bonus. The Company does not contemplate
making any additional contributions to the ESOP until 1998, and any further
contributions will then be dependent upon a number of factors including Company
performance.
CHANGE IN CORPORATIONS FROM SUBCHAPTER S TO SUBCHAPTER C CORPORATIONS
Prior to the Offering, Amscan Inc., Am-Source, Inc., JCS Realty Corp. and
SSY Realty Corp. were operated as Subchapter S corporations for federal income
and, where available, for state income tax purposes. As a result, these
corporations did not record or pay any federal or state income tax expense.
Following the Offering, the Company will be taxed as a Subchapter C corporation.
It is anticipated that the Company will have statutory income tax rates of
approximately 40.5% following the Offering. The Company has presented pro forma
tax provisions and pro forma net income and per share data. These pro forma
amounts represent the income tax provision and the net income of the Company had
it been a Subchapter C corporation and thus subject to income tax for all
periods. See "Amscan Inc. and Affiliates Combined Financial Statements" and
"Supplemental Pro Forma Combined Financial Statements."
STOCKHOLDER DISTRIBUTIONS
As Subchapter S corporations, the accumulated profits of Amscan Inc.,
Am-Source, Inc., JCS Realty Corp. and SSY Realty Corp. will be distributed to
the stockholders through the effective date of the Offering. Net profits after
the consummation of the Offering will be added to retained earnings of the
Company and used to fund the capital requirements of the business. Additionally,
prior to the Offering, Amscan Inc. and certain affiliates will declare dividends
representing distributions of accumulated profits and a return of capital. These
amounts will be reflected as subordinated debt and will be repaid from the net
proceeds of the Offering. It is estimated that the total of these amounts,
including the pre-existing subordinated debt as of September 30, 1996, will be
approximately $39 million.
------------------
The impact of the termination of the prior employment agreements described
above and the establishment of the ESOP (or the payment of stock bonuses) will
result in a one-time charge to compensation expense of approximately $16.0
million. This expense, which will be recognized during the period that Amscan
Inc., Am-Source, Inc., JCS Realty Corp. and SSY Realty Corp. are Subchapter S
corporations, will be reflected in the Company's operations in the fiscal
quarter which includes the Offering.
21
<PAGE> 25
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER
YEARS ENDED DECEMBER 31, 30,
------------------------- ---------------
1993 1994 1995 1995 1996
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Net sales............................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales........................... 66.7 65.7 64.9 63.7 63.2
------ ------ ------ ------ ------
Gross profit............................ 33.3 34.3 35.1 36.3 36.8
Operating expenses:
Selling................................. 9.0 8.5 7.4 6.9 6.0
General and administrative.............. 10.1 11.0 9.1 8.1 9.6
Art and development..................... 2.4 2.1 2.5 2.3 2.5
Special bonuses......................... 1.0 1.7 1.5 1.9 2.2
------ ------ ------ ------ ------
Total operating expenses................ 22.5 23.3 20.5 19.2 20.3
------ ------ ------ ------ ------
Income from operations.................. 10.8 11.0 14.6 17.1 16.5
Interest expense, net................... 2.1 2.9 3.4 3.4 3.1
Other expense (income), net............. 0.3 0.1 (0.2) (0.3) (0.2)
------ ------ ------ ------ ------
Income before income taxes and
minority interests.................... 8.4 8.0 11.4 14.0 13.6
Income taxes............................ 0.3 0.4 0.4 0.4 0.5
Minority interests...................... 0.3 0.1 0.6 0.5 0.9
------ ------ ------ ------ ------
Net income.............................. 7.8% 7.5% 10.4% 13.1% 12.2%
====== ====== ====== ====== ======
</TABLE>
NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1995
NET SALES
Net sales for the nine months ended September 30, 1996 were $147.0 million,
an increase of 14.6% over the nine months ended September 30, 1995 for which net
sales were $128.3 million. Increased sales to national accounts, principally
superstores, accounted for approximately $15.7 million or 84% of this increase.
Also contributing to this sales increase was the impact of the Company's
marketing strategy of continually offering new products as well as new designs
and themes for existing products. In 1996, the Company's product line included
approximately 14,000 sku's compared with approximately 13,400 sku's in 1995.
Selling price increases related to core products (paper plates, napkins, cups
and tablecovers) in response to higher paper costs accounted for approximately 6
percentage points of the 14.6% increase in net sales between the periods.
Increased sales to international customers accounted for approximately $2.1
million of the increase in net sales.
GROSS PROFIT
Gross profit increased approximately $7.6 million for the nine months ended
September 30, 1996 compared to the same period in 1995, and improved as a
percentage of net sales from 36.3% to 36.8%. Higher selling prices in response
to prior period increases in paper costs as well as lower product costs
resulting from the Company's continued vertical integration of certain
manufacturing operations, offset in part by the cost of added distribution
facilities, were the primary reasons for this improvement in margins. As a
result of new operating leases for added facilities and manufacturing equipment,
rent expense included in cost of sales increased $1.5 million.
SELLING EXPENSES
Selling expenses were lower by approximately $0.2 million for the nine
months ended September 30, 1996 compared to the same period in 1995, and
declined as a percentage of net sales from 6.9% to 6.0%. The primary reason for
the percentage decline was the Company's ability to increase
22
<PAGE> 26
sales to its party superstore customers while not significantly increasing its
sales costs associated with these accounts.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses increased approximately $3.7 million
for the nine months ended September 30, 1996 compared to the same period in
1995. As a percentage of net sales, general and administrative expenses
increased from 8.1% to 9.6%. This increase is principally attributable to an
increase in the provision for bad debts of $0.4 million or 0.3% of net sales
related to a significant increase in the Company's accounts receivable and
increased occupancy costs of $0.4 million or 0.3% of net sales related to the
Company's new corporate offices. Also contributing to this increase are
non-recurring costs related to the development of a new business management
computer system of $0.8 million or 0.5% of net sales as well as one-time costs
associated with the move to the new corporate offices of $0.3 million or 0.2% of
net sales and additional personnel costs including relocation and recruitment
costs of $0.3 million or 0.2% of net sales.
ART AND DEVELOPMENT COSTS
Art and development costs increased approximately $0.7 million for the nine
months ended September 30, 1996 compared to the same period in 1995. As a
percentage of net sales, art and development costs increased from 2.3% to 2.5%.
The Company significantly expanded its creative and new product development
staff and internal development capabilities in the middle part of 1995 which
resulted in a substantial increase in art and development costs. The increase in
art and development expenditures reflects the Company's strategy to remain a
leader in product quality and development.
SPECIAL BONUSES
Special bonuses, which were based entirely upon the Company's pre-tax
income, increased by approximately $0.9 million for the nine months ended
September 30, 1996 compared to the same period in 1995. In connection with the
Offering, the employment agreements which gave rise to these bonuses have been
substantially modified to eliminate the special bonus payments. See "Management
of the Company -- Executive Compensation -- Employment Agreements."
INCOME FROM OPERATIONS
The factors discussed above contributed to the increase in income from
operations of 11.0% to $24.4 million for the nine months ended September 30,
1996 from $22.0 million in the corresponding period in 1995. As a percentage of
net sales, income from operations decreased from 17.1% for the nine months ended
September 30, 1995 to 16.5% for the same period in 1996.
INTEREST EXPENSE, NET
Interest expense, net increased by $0.2 million to $4.6 million for the
nine months ended September 30, 1996, reflecting slightly higher borrowings
associated with increased working capital (primarily for inventory and accounts
receivable) needed to support the increased volume of sales, offset in part by a
lower effective interest cost associated with the Company's revised revolving
credit agreement, which was entered into in September 1995.
INCOME TAXES
Amscan Inc., Am-Source, Inc., JCS Realty Corp. and SSY Realty Corp. elected
to be taxed as Subchapter S corporations for federal income tax and, where
available, for state income tax purposes. Accordingly, these entities have not
been subject to federal income taxes. In connection with the completion of the
Offering, Amscan Inc., Am-Source, Inc., JCS Realty Corp. and SSY Realty Corp.
will terminate their Subchapter S corporation status and, accordingly, will be
subject to federal and state income taxes. The amounts shown as income taxes
consist principally of foreign taxes. See "Amscan Inc. and Affiliates Combined
Financial Statements."
23
<PAGE> 27
MINORITY INTERESTS
Minority interests represent the portion of income attributable to equity
ownership not held by Mr. Svenningsen. In addition to the minority interests of
certain foreign entities, these amounts include the minority interest of
Am-Source, Inc., which will be acquired in conjunction with the Offering. See
"Organization of the Company."
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
NET SALES
Net sales for the year ended December 31, 1995 were $167.4 million, an
increase of 26.8% over 1994 when net sales were $132.0 million. Increased sales
to superstores accounted for $23.3 million or 66% of this increase. The number
of retail outlets represented by these accounts increased to 886 in 1995 from
720 in 1994. Also contributing to this net sales increase was the impact of the
Company's marketing strategy of continually offering new products as well as new
designs and themes for existing products. In 1995, the Company's product line
included over 13,400 sku's compared with approximately 11,000 sku's in 1994.
Selling price increases related to core products (paper plates, napkins,
tablecovers and cups) in response to higher paper costs, accounted for
approximately 5 percentage points of the 26.8% of the year-over-year increase in
net sales. Increased sales to international customers accounted for
approximately $4.3 million of the increase in net sales in 1995 compared to
1994.
GROSS PROFIT
Gross profit increased by approximately $13.5 million from 1994 to 1995,
and improved as a percentage of net sales from 34.3% to 35.1%. The gross profit
margin improvement resulted primarily from the increased vertical integration of
the Company's tableware manufacturing operations. During 1995, the Company added
several new pieces of equipment including two printing presses which enabled it
to expand its manufacturing capacity. In addition, gross margin improved as a
result of increased leveraging of existing distribution facilities and improved
purchasing of nonmanufactured products.
SELLING EXPENSES
Selling expenses increased by approximately $0.9 million from 1994 to 1995,
but declined as a percentage of net sales from 8.5% to 7.4%. The primary reason
for the percentage decline was the Company's ability to increase sales to its
superstore customers, while not significantly increasing its sales costs
associated with these accounts.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses increased by approximately $0.5 million
from 1994 to 1995, primarily as a result of modest wage increases partially
offset by decreased provisions for bad debts and write-offs. During 1994, the
Company sustained a larger amount of write-offs due to two large accounts which
filed for bankruptcy. As a percentage of net sales, general and administrative
expenses declined from 11.0% to 9.1%. The Company was able to leverage its
administrative resources while supporting the increased sales.
ART AND DEVELOPMENT COSTS
Art and development costs increased approximately $1.5 million from 1994 to
1995. As a percentage of net sales, art and development costs increased from
2.1% in 1994 to 2.5% in 1995. The Company significantly expanded its creative
and new product development staff and internal development capabilities in 1995,
which resulted in a substantial increase in art and development costs. The
increase in such expenses reflects the Company's strategy of remaining a leader
in product quality and development.
24
<PAGE> 28
SPECIAL BONUSES
Special bonuses, which were based upon the Company's pre-tax income,
increased in 1995 over 1994. The special bonus in 1994 included special one-time
bonuses of approximately $0.8 million associated with the partial acquisition of
Am-Source, Inc. In connection with the Offering, the employment agreements which
gave rise to these bonuses have been substantially modified to eliminate the
special bonus payments. See "Management of the Company -- Executive
Compensation -- Employment Agreements."
INCOME FROM OPERATIONS
The factors discussed above contributed to the increase in income from
operations of 69.9% to $24.7 million in 1995 from $14.5 million in 1994. As a
percentage of net sales, income from operations increased from 11.0% in 1994 to
14.6% in 1995.
INTEREST EXPENSE, NET
Interest expense, net increased by $1.9 million to $5.8 million from 1994
to 1995, reflecting higher borrowings associated with increased working capital
(primarily for inventory and accounts receivable) needed to support the
increased volume of sales, as well as an increase in the Company's average
effective rate for borrowed money from 7.5% to 8.3%.
INCOME TAXES
Amscan Inc., Am-Source, Inc., JCS Realty Corp. and SSY Realty Corp. elected
to be taxed as Subchapter S corporations for federal income and, where
available, for state income tax purposes. Accordingly, these entities have not
been subject to federal income taxes. In connection with the consummation of the
Offering, Amscan Inc., Am-Source, Inc., JCS Realty Corp. and SSY Realty Corp.
will terminate their Subchapter S corporation status and, accordingly, will be
subject to federal and state income taxes. The amounts shown as income taxes
consist principally of foreign taxes. See "Amscan Inc. and Affiliates Combined
Financial Statements."
MINORITY INTERESTS
Minority interests represent the portion of income attributable to equity
ownership not held by Mr. Svenningsen. In addition to the minority interests of
certain foreign entities, these amounts include the minority interest of
Am-Source, Inc. which will be acquired in conjunction with the Offering. See
"Organization of the Company."
YEAR ENDED DECEMBER 31, 1994 COMPARED TO DECEMBER 31, 1993
NET SALES
Net sales for the year ended December 31, 1994 were $132.0 million, an
increase of 21.2% over 1993 when net sales were $108.9 million. Increased sales
to superstores accounted for $12.5 million or 54% of this increase. The number
of retail outlets represented by these accounts increased to 720 in 1994 from
591 in 1993. The number of items offered by the Company, which increased from
10,000 sku's in 1993 to 11,000 in 1994, also contributed to the improvement in
net sales. In addition, sales were favorably affected by the inclusion of a full
year of operating results for Am-Source, Inc. and Trisar, Inc. both of which
were acquired by the Company during 1993. Average selling prices for the
Company's core products (paper plates, napkins, cups and tablecovers) remained
relatively flat between 1993 and 1994. Increased sales to international
customers accounted for approximately $3.0 million of the sales increase.
GROSS PROFIT
Gross profit increased approximately $9.0 million from 1993 to 1994, and
improved as a percentage of net sales from 33.3% to 34.3%. Improved margins
resulted from the Company's manufacturing a greater portion of its tableware
requirements. In addition, gross margin improved
25
<PAGE> 29
as a result of increased leveraging of existing distribution facilities and
improved purchasing of non-manufactured products.
SELLING EXPENSES
Selling expenses increased approximately $1.5 million between 1993 and
1994, but declined as a percentage of net sales from 9.0% to 8.5%. The primary
reason for the percentage decline was the Company's ability to increase sales to
its superstore customers while not significantly increasing its sales costs
associated with these accounts.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expense increased approximately $3.4 million
from 1993 to 1994 as a result of a number of factors including: the full year
impact of acquisitions made in 1993, increases in provisions for bad debts,
increased consulting and professional fees associated with systems development
and wage increases. As a percentage of net sales, general and administrative
expenses increased from 10.1% to 11.0% from 1993 to 1994.
ART AND DEVELOPMENT COSTS
Art and development costs increased approximately $0.2 million between 1993
and 1994. The increase was principally a result of the additional art and
development costs associated with the acquisition of Trisar, Inc. which was
consummated in 1993. As a percentage of net sales, art and development expenses
decreased from 2.4% in 1993 to 2.1% in 1994.
SPECIAL BONUSES
Special bonuses, which were based upon the Company's pre-tax income,
increased in 1994 over 1993. The special bonus in 1994 included special one-time
bonuses of approximately $0.8 million associated with the partial acquisition of
Am-Source, Inc. In connection with the Offering, the employment agreements which
gave rise to these bonuses have been substantially modified to eliminate the
special bonus payments. See "Management of the Company -- Executive Compensation
- -Employment Agreements."
INCOME FROM OPERATIONS
Due to the factors discussed above, income from operations increased 23.9%
to $14.5 million in 1994 from $11.7 million in 1993. As a percentage of net
sales, income from operations increased from 10.8% to 11.0% from 1993 to 1994.
INTEREST EXPENSE, NET
Interest expense, net in 1994 increased by $1.5 million to $3.8 million,
reflecting higher borrowings associated with increased working capital needed to
support the increased volume of sales, as well as an increase in the Company's
average effective interest rate from 6.9% to 7.5%.
INCOME TAXES
Amscan Inc., Am-Source, Inc., JCS Realty Corp. and SSY Realty Corp. elected
to be taxed as Subchapter S corporations for federal income and, where
available, for state tax purposes. Accordingly, these entities have not been
subject to federal income taxes. In connection with the Offering, Amscan Inc.,
Am-Source, Inc., JCS Realty Corp. and SSY Realty Corp. will terminate their
Subchapter S corporation status and, accordingly, will be subject to federal and
state income taxes. The amounts shown as income taxes consist principally of
foreign taxes. See "Amscan Inc. and Affiliates Combined Financial Statements."
MINORITY INTERESTS
Minority interests represent the portion of income attributable to equity
ownership not held by Mr. Svenningsen. In addition to the minority interests of
certain foreign entities, these amounts
26
<PAGE> 30
include the minority interest of Am-Source, Inc. which will be acquired in
conjunction with the Offering. See "Organization of the Company."
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its growth over the past three years principally
through cash flow generated from operations, the use of operating leases,
increases in its revolving line of credit borrowings and increases in long-term
debt, including subordinated debt owed to Mr. Svenningsen. The proceeds from
this Offering will be used to reduce indebtedness under the Company's line of
credit and to repay subordinated debt. Management believes that the Company's
working capital requirements will continue to be met by cash flow from
operations and borrowings under its line of credit.
On September 20, 1995, the Company amended its revolving line of credit
with several banks. This facility provided the Company with a $50.0 million
credit line based upon the eligible assets of the Company. The amount available
under this facility increased to $55.0 million on September 20, 1996, and will
increase to $60.0 million on September 20, 1997. The facility, which expires
September 20, 2000, had an outstanding balance as of September 30, 1996 of $45.8
million at an average interest rate of 6.96%. This rate includes the impact of
interest rate "swap" contracts which the Company has entered into to fix the
interest rate on $25.0 million of its obligation. (See Note (5) of the Notes to
Combined Financial Statements of Amscan Inc. and Affiliates.) The Company's
revolving line of credit imposes certain restrictions on the ability of the
Company and certain of its subsidiaries, including Amscan Inc., to incur
additional indebtedness, enter into guarantees or other similar agreements, make
loans to or investments in other persons and pay dividends. The Company and its
subsidiaries on a combined basis are also subject to financial covenants which
require them to maintain a certain threshold tangible net worth, limit capital
expenditures and require the Company and its subsidiaries on a combined basis to
maintain certain financial ratios pursuant to the credit agreement relating to
this facility. The Company is not currently in default in respect of any of
these restrictive covenants or financial ratios. The Company may seek to enter
into new arrangements to replace this revolving credit facility which might
include both term debt and revolving credit.
Net cash used in operating activities decreased by approximately $9.6
million to $0.3 million in the September 1996 period from $9.9 million in the
September 1995 period as a result of increases in net earnings before
depreciation and amortization and an increase in accounts payable and accrued
liabilities, partially offset by an increase in deposits paid on purchased
equipment and a decrease in the rate of growth in inventories and other assets.
Net cash used in investing activities of $3.7 million remained nearly level with
spending for the nine months ended September 30, 1995. Net cash provided by
financing activities decreased by $9.1 million, to $5.0 million in the September
1996 period from $14.1 million in the September 1995 period as a result of net
decreases in loans, notes payable and long-term indebtedness.
Net cash provided by operating activities decreased by $1.0 million to $2.9
million in 1995 from $3.9 million in 1994. This decrease was primarily
attributable to increases in accounts receivable, inventories and other assets,
offset by increases in accounts payable and accrued expenses and net income
before depreciation and amortization. Net cash used in investing activities
decreased $3.4 million from $6.1 million to $2.7 million due to reduced capital
expenditures. Net cash provided from financing activities decreased $2.6 million
from $2.7 million to $0.1 million due to an increase in stockholder
distributions partially offset by an increase in loans, notes payable and
long-term indebtedness.
Net cash provided by operating activities decreased $4.8 million from $8.7
million in 1993 to $3.9 million in 1994 due to decreased growth in accounts
payable and accrued expenses and increased inventories and other assets,
partially offset by increased net income before depreciation and amortization
and decreased growth of accounts receivable. Net cash used in investing
activities increased $0.4 million from $5.6 million to $6.0 million in 1994. The
increase was attributable to
27
<PAGE> 31
payments made in 1993 for acquisitions, not made in 1994, offset by increases in
capital expenditures in 1994 over 1993. Net cash from financing activities
increased $4.7 million from $1.9 million used in 1993 to $2.8 million provided
by financing activities in 1994, due to an increase in proceeds from loans,
notes payable and long-term debt, offset by a decrease in stockholder
distributions.
Accounts receivable, net increased $19.5 million to $51.4 million on
September 30, 1996 from $31.9 million at December 31, 1995. This increase is due
principally to the seasonal nature of the business as well as increased sales.
Third quarter sales are generally the highest of the year primarily due to
initial shipments of seasonal holiday merchandise which has dated terms which
result in higher accounts receivable balances relative to year-end levels.
Deposits and other assets increased $7.2 million to $10.1 million on
September 30, 1996 from December 31, 1995. Accrued expenses increased $8.0
million to $17.5 million on September 30, 1996. These increases are due
principally to deposits placed and the related advances received in connection
with various operating leases for manufacturing and warehouse equipment as well
as office equipment and computer software.
Loans payable increased $10.1 million to $47.9 million on September 30,
1996 from December 31, 1995 due to increases on various existing lines of
credit. These increases were used to fund working capital needs which consisted
primarily of increased accounts receivable.
Subordinated debt and other indebtedness to stockholders increased $19.9
million to $35.9 million on September 30, 1996 from December 31, 1995. This
increase is due principally to the declaration of distributions of accumulated
earnings to stockholders.
Additional paid-in capital decreased $7.6 million to $1.5 million on
September 30, 1996 from December 31, 1995 due to the declaration of
distributions of previously provided capital.
The Company generated $8.2 million and $13.1 million from third party
financings for the nine months ended September 30, 1996 and 1995, respectively.
Financings for the nine months ended September 30, 1996 consisted primarily of
borrowings under credit facilities, while financings through September 30, 1995
consisted primarily of long-term loans secured by machinery and equipment and
borrowings under the credit facilities. The Company used $23.0 million of the
cash for the nine months ended September 30, 1996 and $30.4 million of the cash
for the nine months ended September 30, 1995 to fund its working capital needs,
which consisted primarily of increases in accounts receivable and inventory.
The Company generated $10.0 million and $3.9 million from third party
financings and $1.2 million and $6.3 million from financings with Mr.
Svenningsen in 1995 and 1994, respectively. Financings in 1995 consisted
primarily of long-term loans secured by machinery and equipment and borrowings
under revolving credit facilities, while financings in 1994 consisted primarily
of bankers acceptances and borrowings under revolving credit facilities. The
Company used $20.5 million of the cash in 1995 and $12.5 million of the cash in
1994 to fund its working capital needs, which consisted primarily of increases
in accounts receivable and inventory.
In 1995, the Company acquired $2.6 million of machinery and equipment,
which was financed by long-term debt and borrowings under the Company's
revolving credit facility, and entered into operating leases for additional
machinery and equipment worth $7.4 million. In 1994, the Company acquired $6.8
million of machinery and equipment which was financed primarily by borrowings
under the Company's revolving credit facilities and $4.0 million of which was
refinanced through long-term loans early in 1995. The Company is continuing to
add to manufacturing capacity and has entered into additional operating leases
for machinery and equipment worth approximately $10.4 million and has acquired
machinery and equipment worth approximately $5.8 million to date in 1996.
Management believes that these additions to plant and equipment provide adequate
capacity to support its operations for at least the balance of the year ending
December 31, 1996 and for the year ending December 31, 1997. As of September 30,
1996 the Company did not have material commitments for capital expenditures
other than for machinery and equipment which will be leased under the
aforementioned $10.4 million of operating leases.
28
<PAGE> 32
In 1995, the Company distributed $11.0 million, compared to $7.5 million in
1994, to stockholders, of which $4.0 million in 1995 and $6.3 million in 1994
was reinvested in the Company as debt payable to stockholders. The remainder of
these distributions was used principally for the payment of their taxes. See
"Organization of the Company." The increase from 1994 to 1995 was due to
increased earnings of those corporations, taxable to the stockholders.
RECENTLY ISSUED ACCOUNTING STANDARDS
In October 1995, the Financial Accounting Standards Board (FASB) issued
Statement on Financial Accounting Standards (SFAS) No. 123 -- Accounting for
Stock-Based Compensation. As allowable by SFAS 123, the Company does not intend
to recognize compensation cost for stock-based employee compensation
arrangements, but rather, starting with fiscal 1996, will disclose the pro-forma
impact on net income and earnings per share as if the fair value stock-based
compensation had been recognized starting with fiscal 1995.
In March, 1995, the FASB issued SFAS 121 -- Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. When adopted
in 1996, the Company does not believe that the impact of SFAS 121 will have a
significant impact on its financial position or results of operations.
Other pronouncements issued by the FASB or other authoritative accounting
standard groups with future effective dates are either not applicable or not
significant to the financial statements of the Company.
QUARTERLY RESULTS
As a result of the seasonal nature of certain of the Company's products,
the quarterly results of operations may not be indicative of those for a full
year. Third quarter sales are generally the highest of the year due to a
combination of increased sales to consumers of the Company's products during
summer months as well as initial shipments of seasonal holiday merchandise as
retailers build inventory. Conversely, fourth quarter sales are generally lower
as retailers sell through inventories purchased during the third quarter. The
overall growth rate of the Company's sales in recent years has offset, in part,
this sales variability. Promotional activities, including special dating and
pricing terms, particularly with respect to Halloween and Christmas products,
result in generally lower margins and profitability in the fourth quarter, as
well as higher accounts receivable balances and associated higher interest costs
to support these balances. The following table sets forth the historical net
sales and income from operations of the Company for 1995 and 1996 by quarter.
<TABLE>
<CAPTION>
1996 QUARTERS
1995 QUARTERS ----------------------------
---------------------------------------- MARCH
MARCH 31 JUNE 30 SEPT. 30 DEC. 31 31 JUNE 30 SEPT. 30
-------- ------- -------- -------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
($ IN THOUSANDS)
Net sales................ $ 39,376 $41,046 $ 47,892 $ 39,089 $47,258 $45,714 $ 54,036
Income from operations... $ 6,492 $ 6,350 $ 9,120 $ 2,707(a) $ 7,586 $ 7,564 $ 9,222
</TABLE>
- ---------------
(a) In addition to the seasonal variability described above, income from
operations for the fourth quarter of 1995 was adversely affected by the
impact of higher paper costs for which selling price adjustments were
implemented in the first quarter of 1996. Income from operations for this
quarter was also adversely affected by additional bad debt reserves
(approximately $0.5 million) and additional computer system expenses
(approximately $0.5 million).
29
<PAGE> 33
SUPPLEMENTAL PRO FORMA COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
The following Supplemental Pro Forma Combined Financial Statements for the
year ended December 31, 1995 and as of and for the nine months ended September
30, 1996 reflect the combined results of operations of Amscan Inc. and
Affiliates after giving effect to certain events that have occurred or will
occur in conjunction with the Organization and the Offering including pro forma
adjustments intended to present the historical results as if Amscan Inc.,
Am-Source, Inc., JCS Realty Corp. and SSY Realty Corp. had not elected to be
treated as Subchapter S corporations for tax purposes.
The unaudited Supplemental Pro Forma Combined Financial Statements have
been prepared by management solely to facilitate period to period comparisons
and do not represent the actual financial position or results of operations for
the periods presented. The Supplemental Pro Forma Combined Balance Sheet and the
Supplemental Pro Forma Combined Statements of Operations do not purport to be
indicative of future results.
The Supplemental Pro Forma Combined Financial Statements should be read in
conjunction with the Combined Financial Statements of Amscan Inc. and Affiliates
and the notes thereto as of and at December 31, 1995 and the Combined Financial
Statements of Amscan Inc. and Affiliates and the notes thereto as of and at
September 30, 1996 contained elsewhere in this Prospectus.
30
<PAGE> 34
AMSCAN INC. AND AFFILIATES
SUPPLEMENTAL PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
($ IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA AND
SUPPLEMENTAL
PRO FORMA SUPPLEMENTAL
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ------------- ------------
<S> <C> <C> <C>
Net sales......................................... $ 167,403 $ 167,403
Cost of sales..................................... 108,654 108,654
-------- --------
Gross profit.................................... 58,749 58,749
Selling......................................... 12,241 12,241
General and administrative...................... 15,002 $ 250(a) 15,252
Art and development............................. 4,256 4,256
Special bonuses................................. 2,581 (2,581)(b) --
-------- --------
Income from operations....................... 24,669 27,000
Interest expense, net............................. 5,772 (2,686)(c) 3,086
Other income, net................................. (309) (309)
-------- --------
Income before income taxes and minority
interests.................................... 19,206 24,223
Income taxes...................................... 731 9,181(d) 9,912
Minority interests................................ 1,041 (927)(a) 114
-------- --------
Supplemental pro forma net income............... $ 17,434 $ 14,197(e)
======== ========
Supplemental pro forma net income per share..... $ 0.65
========
Supplemental pro forma weighted average common
shares outstanding........................... 22,000,000(f)
========
</TABLE>
Notes to Supplemental Pro Forma Combined Statement of Operations for the year
ended December 31, 1995 ($ in thousands):
(a) To reflect $250 amortization of goodwill of $7,500 over thirty years and
the elimination of $927 for minority interest related to the acquisition of
an additional 50% of Am-Source, Inc. as if it were acquired at the
beginning of the period presented;
(b) To reflect the elimination of special bonuses beyond performance-based
compensation that will not be recurring due to the termination of certain
employment agreements in connection with the Offering;
(c) To reflect the reduction of actual interest expense assuming a repayment of
$20,000 of bank loans at the actual rate in effect and an average balance
of $13,300 of loans from Mr. Svenningsen at the actual rate in effect;
(d) To provide for income taxes at statutory rates of 40.5% on earnings as if
Amscan Inc., Am-Source, Inc., JCS Realty Corp. and SSY Realty Corp. had not
been treated as Subchapter S corporations during the period presented
($6,672) and to give effect to the tax effect of these adjustments
($2,509);
(e) The above pro forma and supplemental pro forma adjustments do not include
anticipated non-recurring expenses of $15,980 relating to compensation
expense to be incurred at the consummation of the Offering in connection
with cash and stock of $11,980 to be paid to Mr. Rittenberg and $1,000 to
be paid to certain other executives in connection with the termination or
modification of prior employment agreements and $3,000 for the
establishment of the ESOP for the benefit of the Company's domestic
employees and the payment of stock bonuses to certain of such employees;
(f) Supplemental pro forma weighted average common shares outstanding is
calculated as if the shares issued in the Offering as well as those issued
in the Organization had been outstanding from the beginning of the period
presented.
31
<PAGE> 35
AMSCAN INC. AND AFFILIATES
SUPPLEMENTAL PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
($ IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA AND
SUPPLEMENTAL
PRO FORMA SUPPLEMENTAL
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ------------- ------------
<S> <C> <C> <C>
Net sales.......................................... $ 147,008 $ 147,008
Cost of sales...................................... 92,861 92,861
-------- --------
Gross profit..................................... 54,147 54,147
Selling.......................................... 8,691 8,691
General and administrative....................... 14,113 $ 188(a) 14,301
Art and development.............................. 3,671 3,671
Special bonuses.................................. 3,300 (3,300)(b) --
-------- --------
Income from operations........................... 24,372 27,484
Interest expense, net.............................. 4,569 (2,102)(c) 2,467
Other income, net.................................. (301) (301)
-------- --------
Income before income taxes and minority
interests..................................... 20,104 25,318
Income taxes....................................... 767 9,769(d) 10,536
Minority interests................................. 1,242 (1,138)(a) 104
-------- --------
Supplemental pro forma net income................ $ 18,095 $ 14,678(e)
======== ========
Supplemental pro forma net income per share...... $ 0.67
========
Supplemental pro forma weighted average common
shares outstanding............................ 22,000,000(f)
========
</TABLE>
Notes to Supplemental Pro Forma Combined Statement of Operations for the nine
months ended September 30, 1996 ($ in thousands):
(a) To reflect $188 for amortization of goodwill of $7,500 over thirty years
and the elimination of $1,138 for minority interest related to the
acquisition of an additional 50% of Am-Source, Inc. as if it were acquired
at the beginning of the period presented;
(b) To reflect the elimination of special bonuses beyond the performance-based
compensation that will not be recurring due to the termination of certain
employment agreements in connection with the Offering;
(c) To reflect the reduction of actual interest expense assuming a repayment of
$20,000 of bank loans at the actual rate in effect and $16,000 of loans
from Mr. Svenningsen at the actual rate in effect;
(d) To provide for income taxes at statutory rates (40.5%) on earnings as if
Amscan Inc., Am-Source, Inc., JCS Realty Corp. and SSY Realty Corp. had not
been treated as Subchapter S corporations during the period presented
($7,121) and to give effect to the tax effect of these adjustments
($2,648);
(e) The above pro forma and supplemental pro forma adjustments do not include
anticipated non-recurring expenses of $15,980 relating to compensation
expense to be incurred at the consummation of the Offering in connection
with cash and stock of $11,980 to be paid to Mr. Rittenberg and $1,000 to
be paid to certain other executives in connection with the termination or
modification of prior employment agreements and $3,000 for the
establishment of the ESOP for the benefit of the Company's domestic
employees and the payment of stock bonuses to certain of such employees;
(f) Supplemental pro forma weighted average common shares outstanding is
calculated as if the shares issued in the Offering as well as those issued
in the Organization had been outstanding from the beginning of the period
presented.
32
<PAGE> 36
AMSCAN INC. AND AFFILIATES
SUPPLEMENTAL PRO FORMA COMBINED BALANCE SHEET
SEPTEMBER 30, 1996
($ IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
SUPPLEMENTAL
PRO FORMA
SUPPLEMENTAL ADJUSTMENTS
PRO FORMA ADJUSTED TO GIVE EFFECT TO SUPPLEMENTAL
HISTORICAL ADJUSTMENTS HISTORICAL THE OFFERING PRO FORMA
---------- ------------ -------- ----------------- ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......... $ 3,530 $ 3,530 $ 3,530
Accounts receivable, net.......... 51,359 51,359 51,359
Inventories....................... 45,074 45,074 45,074
Deposits and other................ 10,146 $ 3,078(a) 13,224 13,224
-------- -------- --------
Total current assets........... 110,109 113,187 113,187
Property, plant and equipment,
net............................ 30,409 30,409 30,409
Other............................. 5,235 7,500(b) 12,735 12,735
-------- -------- --------
Total assets................. $ 145,753 $156,331 $156,331
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Loans payable..................... $ 47,955 3,400(c) $ 51,355 $ (28,100)(g) $ 23,255
Subordinated and other
indebtedness to stockholders... 35,900 35,900 (35,900)(g) --
Accounts payable.................. 4,326 4,326 4,326
Accrued expenses.................. 17,514 1,000(d) 18,514 18,514
Current installments of long-term
indebtedness................... 2,318 2,318 2,318
-------- -------- --------
Total current liabilities.... 108,013 112,413 48,413
Long-term indebtedness, excluding
current installments........... 12,412 12,412 12,412
Other............................. 689 5,590(a) 6,279 6,279
-------- -------- --------
Total liabilities............ 121,114 131,104 67,104
-------- -------- --------
Stockholders' equity:
Preferred stock ($0.10 par value;
5,000,000 shares authorized;
none issued and outstanding)
Common stock ($0.10 par value;
50,000,000 shares authorized;
22,000,000 shares issued and
outstanding, as adjusted)...... 393 (393)(e) 1,665 535(h) 2,200
1,518(e)
66(c)
58(b)
23(f)
Additional paid-in capital........ 1,490 (1,212)(e) 19,211 63,465(h) 82,676
8,514(c)
7,442(b)
2,977(f)
Retained earnings................. 23,490 (11,980)(c) 4,998 4,998
(1,000)(d)
(2,512)(a)
(3,000)(f)
Cumulative translation
adjustment..................... (647) (647) (647)
Treasury stock.................... (87) 87(e) -- --
-------- -------- --------
Total stockholders' equity..... 24,639 25,227 89,227
-------- -------- --------
Total liabilities and
stockholders' equity.... $ 145,753 $156,331 $156,331
======== ======== ========
</TABLE>
33
<PAGE> 37
Notes to Supplemental Pro Forma Balance Sheet ($ in thousands, except share
amounts):
(a) Reflects a deferred income tax asset and liability of $3,078 and $5,590,
respectively, (net reduction of $2,512 to Retained Earnings) resulting from
accumulated timing differences as if Amscan Inc., Am-Source, Inc., JCS
Realty Corp., and SSY Realty Corp. had not been treated as Subchapter S
corporations for income tax purposes.
(b) Reflects goodwill of $7,500 related to the acquisition of an additional 50%
of Am-Source, Inc. In connection with the Organization, the Company entered
into an agreement with the stockholders of Am-Source, Inc., other than Mr.
Svenningsen, pursuant to which such stockholders exchanged all of their
outstanding capital stock of Am-Source, Inc. for shares of Common Stock.
The number of shares of Common Stock issued in this exchange was determined
by dividing the $7,500 purchase price by the assumed initial public
offering price of $13 per share for an aggregate of 576,923 shares of
Common Stock ($58 and $7,442, credited to Common Stock and additional
paid-in capital, respectively).
(c) Reflects the accrual for obligations of $3,400 to Mr. Rittenberg as partial
payment in connection with the termination of his prior agreement. In
connection with the Organization, Amscan Inc., Mr. Svenningsen and Mr.
Rittenberg entered into an agreement, whereby Mr. Rittenberg relinquished
certain rights under a previous employment agreement entered into between
Amscan Inc. and Mr. Rittenberg. In exchange for the relinquishment of such
rights, Mr. Rittenberg received a cash payment of $3,400 and a number of
shares of capital stock of Amscan Inc., which shares he exchanged for
660,000 shares of Common Stock at the assumed initial public offering price
of $13 per share. The 660,000 shares issued to Mr. Rittenberg have a fair
market value of $8,580 ($66 and $8,514, credited to Common Stock and
additional paid-in capital, respectively). Such amount has been reflected
as compensation expense thereby reducing retained earnings by $11,980. See
"Organization of the Company" and "Management of the Company -- Executive
Compensation -- Employment Agreements".
(d) Reflects the accrual for obligations payable of $1,000 to certain
executives other than Mr. Rittenberg in connection with the termination of
their prior employment agreements. Such amount has been reflected as
compensation expense thereby reducing retained earnings by $1,000.
(e) Gives effect to the issuance of 15,053,736 shares of Common Stock to Mr.
Svenningsen and 128,572 shares of Common Stock to the SSY Trusts in
connection with the Organization ($1,518 credited to Common Stock).
Pursuant to an agreement between the Company and Mr. Svenningsen, Mr.
Svenningsen exchanged all of the outstanding capital stock of Amscan Inc.
and Affiliates (other than the shares owned by Mr. Rittenberg pursuant to
the agreement described in (c) above) for shares of Common Stock of the
Company. The exchange resulted in the elimination of $393 in common stock,
a reduction of $1,212 in additional paid-in capital, and the retirement of
treasury stock of $87. See "Organization of the Company."
(f) Gives effect to the issuance of 230,769 shares of Common Stock ($23 and
$2,977 credited to Common Stock and additional paid-in capital,
respectively) to establish the ESOP for the benefit of the Company's
domestic employees and the payments of stock bonuses to certain of such
employees. The shares issued are reflected as compensation expense measured
at the assumed initial public offering price of $13, aggregating to $3,000
reduction in retained earnings.
(g) Repayment of bank indebtedness and subordinated indebtedness to
stockholders of $28,100 and $35,900, respectively, as of September 30, 1996
from net proceeds of the Offering. Excludes estimated earnings from
September 30, 1996 to the date of the Offering which will be distributed
and will result in an increase in subordinated indebtedness.
(h) Net proceeds from the Offering, calculated assuming 5,350,000 shares are
issued at the assumed initial public offering price of $13, aggregating to
a total of $64,000 ($535 and $63,465 credited to Common Stock and
additional paid-in capital, respectively).
34
<PAGE> 38
BUSINESS
The Company is a designer, manufacturer and distributor of seasonal and
everyday party goods. With a product line consisting of approximately 14,000
sku's, the Company is a complete source of paper and plastic party goods,
including decorative tableware such as plates, napkins, cups and tablecovers,
accessories such as invitations and balloons, and novelties such as games and
favors. The Company's products are sold in more than 20,000 retail outlets. The
Company is a leading supplier to the emerging party goods superstore
distribution channel, where it has been able to position itself as a responsive
and comprehensive supplier of proprietary, well designed and high quality
products. The Company also distributes its products to discount chains, mass
merchandisers and specialty retailers. The Company's in-house design staff
produces and manages the broad spectrum of party goods for all occasions.
Over the past five years, the businesses which the Company has acquired
continued to grow sales and market share and has increased profitability by
offering a broad product line, creating innovative and unique designs, enhancing
its customer relationships (particularly in the superstore channel) and using
state-of-the-art manufacturing and distribution technology. Further vertical
integration of the operations was sought through strategic acquisitions
including the acquisition in 1993 of a 50% interest in Am-Source Inc., a
manufacturer of plastic plates, cups and bowls, and the acquisition in 1993 of
Trisar, Inc., a manufacturer of gift products. In addition, in 1993 a 48%
interest in Amscan de Mexico, S.A. de C.V., a distributor of the Company's
products in Mexico was acquired. All of such entities became subsidiaries of the
Company upon consummation of the Organization. See "Organization of the
Company."
INDUSTRY OVERVIEW
According to PARTY AND PAPER RETAILER, a trade publication for the party
goods industry, the retail party supplies industry achieved total sales of
approximately $8.8 billion in 1995, which includes items such as cards and
stationery in addition to the products produced by the Company. Over the past
several years, according to the same publication, there has been a significant
shift of sales to party goods superstores.
The Company believes that several current industry trends offer
well-positioned manufacturers opportunities for significant growth including:
- The increasing breadth and availability of party merchandise in the
marketplace. Principal manufacturers such as the Company have broadened
their product offerings to include party goods to celebrate a greater
number of events, holidays and themes. At the same time, manufacturers
are expanding the number and types of products offered for each sort of
occasion to encourage add-on purchases by consumers planning parties.
- The recent emergence of the party goods superstore merchandising
concept. The retail party goods business has historically been
fragmented, with consumers purchasing party goods from independent stores
and designated departments within drug, discount or department store
chains. Over the past several years, the marketplace has begun to accept
a move toward the party goods superstore merchandising concept, similar
to earlier merchandising shifts in such product categories as food, toys,
office supplies, home furnishings and home improvement needs. These
superstores provide consumers with a one-stop source for all of their
party needs generally at discounted prices. By displaying an array of
integrated and related merchandise in an attractive format, they seek to
influence consumers to increase the number of items purchased for each
event or occasion.
- Consumers' desire to enhance the quality of their leisure time. Another
important dynamic in this industry is an increase in home entertaining,
as consumers seek to enhance the quality of their leisure time by
including party goods in their celebrations. The Company believes that
this consumer desire to optimize leisure time is an outgrowth, among
other things, of the
35
<PAGE> 39
increase in two wage-earner families. Party goods offer a convenient and
affordable way to make all types of occasions more festive.
BUSINESS STRATEGY
The Company's goal is to grow sales and market share and enhance
profitability by offering the industry's fullest product line produced using
state-of-the-art design processes and manufacturing technology. The key elements
in executing the Company's strategy include:
PROVIDE THE BROADEST PRODUCT LINE
The Company endeavors to provide party goods retailers with the most
extensive product line in the industry. Differentiating itself from its
competitors, the Company offers approximately 200 design ensembles, each
containing 30 to 150 items appealing to a variety of consumer preferences. In
total, the Company's product line includes approximately 14,000 sku's. The
Company believes that by offering such a full product line, it has created a
competitive advantage by becoming a single source for a large portion of the
retailers' requirements. In addition, the breadth of products gives the consumer
new ideas for making parties festive, colorful and interesting. In this way, the
Company seeks to increase the number of products sold per consumer for each
transaction and generate consumer loyalty and repeat business.
MAINTAIN PRODUCT DESIGN LEADERSHIP
The Company's product development process is design driven. The Company
believes it is a leader in the creation of innovative and unique designs for its
products. The Company looks to create designs which have a level of complexity
and style that is compelling to consumers and difficult for competitors to
replicate. Approximately 60 of the Company's employees are engaged in the design
process. From the large number of designs and concepts developed by these
artists, the Company selects those it believes best to replace approximately
one-third of its designed product ensembles each year. For example, in 1996 the
Company introduced over 50 new ensemble designs.
The Company targets a wide variety of events, holidays and themes in the
creation of its designs and frequently introduces new designs into the
marketplace. The goal of this approach is to heighten consumer awareness of
particular events, holidays and themes and to reinforce the concept that party
planning is appropriate and enjoyable throughout the year. For example, the
Company has introduced on a nationwide scale ensembles for Mardi Gras and
Hawaiian luaus, themes not traditionally part of home entertainment parties.
Almost all of the Company's designs are developed in-house by a creative and
highly skilled design staff using state-of-the-art technology. The Company does
not depend on licenses to any material degree.
WORK CLOSELY WITH CUSTOMERS
The Company strives to build strong relationships with its customer base
representing more than 20,000 retail outlets. Key elements of this strategy are
providing superior service and involving retailers in the Company's product
development and marketing process. In particular, the Company solicits input
from retailers on new product concepts and consumer design preferences in
determining the types of events, holidays and themes to target. The Company also
furnishes to party goods retailers customized planograms for the display of
products in their stores with the goal of maximizing sales to consumers. The
Company believes that effective display of its products at retail, including
coordinated accessories, results in add-on purchases by consumers seeking
further to enhance the festive nature of their celebrations. The Company's order
taking and fulfillment systems are designed to support its customers by
providing customers with high fill rates and short turn-around times.
36
<PAGE> 40
Over the past five years, much of the Company's growth has been
attributable to its ability to establish strong relationships with the emerging
party goods superstore channel of distribution. The Company has been able to
develop these relationships in large part due to its customer service efforts
while maintaining its market position with its traditional customer base of
independent card and party goods retailers.
USE STATE-OF-THE-ART MANUFACTURING AND DISTRIBUTION TECHNOLOGY
The Company uses state-of-the-art technological processes to design,
manufacture and distribute its products. The Company's highly skilled design
staff employs computer assisted design ("CAD") systems to develop designs which
the Company believes are unmatched in terms of complexity and style. Its
state-of-the-art manufacturing equipment includes highly automated printing,
forming, folding and packaging equipment. This vertically integrated
manufacturing capability, which covers most of its core products and accounted
for approximately 50% of 1995 sales, enables the Company to control its costs,
manage its inventory investment and respond quickly to customer orders. In order
to expedite the order-entry process, the Company has equipped its sales force
and certain of its customers with hand held computers. Through the use of
standard telephone lines, these devices interface directly with the Company's
automated distribution centers. The Company's distribution centers employ
computer-assisted systems to receive and fill customer orders efficiently and
quickly.
GROW THROUGH ACQUISITIONS
The Company has, from time to time, sought to expand its product line and
market share, as well as further vertically integrate its operations, through
strategic acquisitions. The Company may pursue additional acquisitions of
complementary businesses which the Company believes may further these strategic
objectives. The form of consideration which the Company might use in any
particular acquisition could be cash, securities or some combination and would
depend on the particular circumstances. Other than its agreement described
herein under "Organization of the Company" pursuant to which the Company
acquired the remaining 50% of Am-Source, Inc., which is the source of the
Company's plastic plates, cups and bowls, the Company does not currently have
any agreements with any parties with respect to acquisitions.
PRODUCTS AND SERVICES
The Company offers products in everyday and seasonal designs. Everyday
events and celebrations include birthdays, showers, weddings, christenings,
graduations, anniversaries, retirements, first communions, bar mitzvahs,
confirmations, summer picnics and barbecues and theme parties (such as Hawaiian
luaus, Mardi Gras and '50's parties). Seasonal celebrations and events include
New Years, Valentine's Day, St. Patrick's Day, Easter, Passover, Fourth of July,
Halloween, Thanksgiving, Hanukkah and Christmas.
The principal categories of products which the Company offers are
tableware, accessories and novelties. The percentages of net sales represented
by each product category for each of the past three calendar years are set forth
in the following table:
<TABLE>
<CAPTION>
1993 1994 1995
----- ----- -----
<S> <C> <C> <C>
Tableware........................................... 55% 58% 60%
Accessories......................................... 27% 26% 24%
Novelties........................................... 18% 16% 16%
</TABLE>
37
<PAGE> 41
The following table sets forth the principal products in each of the three
categories:
<TABLE>
<CAPTION>
TABLEWARE ACCESSORIES NOVELTIES
- --------------------------------- ----------------------- ---------------
<S> <C> <C>
Solid Color: Balloons Buttons
Paper and Plastic Cups Banners Candles
Paper and Plastic Plates Cascades Cocktail Picks
Paper and Plastic Tablecovers Confetti Games
Plastic Cutlery Crepe Mugs
Cutouts Noise Makers
Decorated: Decorative Tissues Party Favors
Paper Cups Flags Party Hats
Paper Napkins Gift Bags Pom Poms
Paper Plates Gift Wrap T-shirts
Paper Tablecovers Guest Towels
Honeycomb Centerpieces
Invitations and Notes
Ribbons and Bows
Signs
</TABLE>
TABLEWARE
The Company believes that tableware products are the initial focus of a
consumer in the planning of a party since these items are necessary in
connection with the consumption of food and beverages. To distinguish its
tableware from that of its competitors, the Company seeks to create a broad
range of unique designs for its products. In addition, the Company's tableware
products are priced competitively and affordably. The Company's paper plates,
cups, napkins, tablecovers and plastic cutlery are affordable, having suggested
retail prices (based upon quantity) ranging between $1.70 and $10.00.
ACCESSORIES AND NOVELTY ITEMS
The Company believes that a consumer also will choose the Company's
tableware over that of its competitors due to the breadth and array of accessory
and novelty items available to the consumer in designs coordinated with the
Company's tableware designs. By offering coordinated ensembles, the Company
seeks to appeal to consumers' imagination and tastes and therefore make the
purchase of the Company's ensembles more appealing than purchasing tableware
without accessories. The display of its accessory items in retail stores, in
unified displays which create a striking visual impact, are designed to
encourage the impulse buying of such accessories and novelty items by offering
consumers the opportunity to enhance the festive nature of their celebration.
The Company believes that the appeal of its full product line thereby increases
the number of products sold per customer for each transaction.
DESIGN AND PRODUCTION
The Company has an active design and new product development program
involving approximately 60 of its employees on a full-time basis. These
individuals perform a variety of functions, including product development,
product management, design layout, art production and catalogue production. The
Company looks to create designs which have a level of complexity and style which
is compelling to consumers and difficult for competitors to replicate. The
design process often begins more than a year in advance of actual commercial
production and is intended to keep pace with changing consumer preferences in
fashion and design. In addition, senior executives and members of the Company's
product development and design staffs regularly meet with customers and attend
trade shows and related events to ascertain market and design trends.
38
<PAGE> 42
Each year, the Company introduces new products as well as new designs and
themes for existing products. New products are introduced not only in its
existing lines but also as entirely new product concepts for the party event.
New products must meet the Company's quality and pricing criteria and be able to
be distributed through the Company's existing marketing and distribution system.
State-of-the-art printing, forming, folding and packaging equipment support
the Company's manufacturing operations. Company facilities in Kentucky, New
York, Rhode Island and California produce paper and plastic plates, napkins,
cups and other party and novelty items. This vertically integrated manufacturing
capability for many of its key products allows the Company the opportunity to
better control costs and improve product quality, manage inventory investment
and provide efficiency in order fulfillment.
In connection with its manufacturing operations, the principal raw
materials used by the Company in its products are paper and plastic. While the
Company currently purchases such raw materials from a relatively small number of
sources, such raw materials are available generally from a number of sources,
and the Company's current suppliers could be replaced by the Company without
adversely affecting the Company's operations in any material respect.
Over the past five years, the Company has purchased or leased new plant and
equipment having an aggregate value of approximately $29 million to expand the
manufacturing capabilities of the Company. As a result, approximately 50% of the
Company's sales in 1995 were of items manufactured by the Company. The Company
generally uses its manufacturing equipment on the basis of at least two shifts
per day in order to lower its production costs per item. In addition, the
Company manufactures products for third parties, the volume of which can be
adjusted by the Company over a relatively short period of time and helps the
Company maintain a satisfactory level of equipment utilization.
The Company sources the remainder of its products from contract
manufacturers, the majority of whom are located in China and elsewhere in the
Far East and with whom the Company has long-standing relationships. The two
largest such suppliers have exclusive supply arrangements with the Company and
represent relationships which have been in place for more than ten years. The
Company believes that the quality of craftsmanship and the ability to satisfy
the Company's pricing criteria provides a significant competitive advantage. The
Company's business, however, is not dependent upon any single source of supply
for products manufactured for the Company by third parties.
SALES AND MARKETING
The Company's practice of including party goods retailers in all facets of
the Company's product development is a key element of the Company's sales and
marketing efforts. The Company targets important consumer preferences by
integrating its own market research with the input of party goods retailers in
the creation of its designs and products. The sales organization assists
customers in the actual set-up and lay out of displays of the Company's
products. From time to time, the Company also provides customers with
promotional displays.
The principal sales and marketing tool of the Company is its three separate
annual catalogues, two for seasonal products and one for everyday products. In
1995, the Company spent $1.1 million on the production of its sales catalogues.
The Company's domestic sales force is comprised of 54 seasoned sales
professionals who have, on average, been affiliated with the Company for over 5
years. International customers are serviced by experienced individuals who are
generally employees of the Company's foreign subsidiaries. This experience
provides the Company with individuals who possess thorough knowledge of the
industry and the ability to maximize the positioning of the Company's broad
product line with respect to the merchandising needs of the retailers.
39
<PAGE> 43
DISTRIBUTION AND SYSTEMS
The Company ships its products from distribution warehouses which employ
computer assisted systems. Everyday products are shipped either from California
or New York in order to achieve the most economical freight costs while
providing fast delivery of goods to the party goods retailer. In order to
control inventory investment, seasonal products are shipped out of a central
warehouse located in New York. Products for foreign markets are shipped from the
Company's distribution warehouses in Canada, Mexico, England and Australia.
Many of the Company's sales orders are generated electronically through
hand held units with which the sales force as well as many customers are
equipped. Specifically, orders are entered into the hand held units and then
transmitted over telephone lines to the Company's mainframe computer where they
are processed for shipment. This electronic order entry expedites the order
processing which in turn improves the Company's ability to fill customer
merchandise needs accurately and quickly.
COMPETITION
The Company competes on the basis of diversity and quality of its product
designs, breadth of product line, product availability, price, reputation and
customer service. The Company has many competitors with respect to one or more
of its products, including smaller independent specialty manufacturers and other
companies, some of which have financial resources which are greater than those
of the Company. Certain of these competitors control licenses for widely
recognized images, such as cartoon or motion picture characters, which could
provide them from time to time with a competitive advantage. The Company
believes, however, that there are few competitors which manufacture and
distribute products with the complexity of design and breadth of product
offerings that the Company does. In addition, the Company knows of no competitor
who utilizes design styles across product categories to provide consumers with
coordinated products in the variety that the Company offers. Furthermore, the
Company believes that its state-of-the-art design and manufacturing processes
create an efficiency in manufacturing that few of its competitors achieve in the
production of numerous coordinated products in multiple design types.
CUSTOMERS
The Company's customers are principally party goods superstores, large
discount chains, mass merchandisers and independent card and party retailers.
Among this group, the Company's primary customers are party goods superstores.
During 1995 and the first nine months of 1996, sales by the Company to its
largest customer, Party City Corporation, were 11% and 14% respectively, of the
Company's combined net sales for such periods. Although the Company believes its
relationship with Party City Corporation to be good, should such relationship be
terminated, the Company's financial condition and results of operations could be
adversely affected.
PATENTS, TRADEMARKS, COPYRIGHTS, LICENSES
The Company owns copyrights on the designs created by the Company and used
on its products. The Company owns trademarks in the words and designs used on or
in connection with its products. It is the practice of the Company to register
its copyrights with the United States Copyright Office to the extent it deems
reasonable. The Company does not believe that the loss of copyrights or
trademarks with respect to any particular product or products would have a
material adverse effect on the business of the Company.
The Company does not depend on licenses to any material degree in its
business and, therefore, does not incur any material licensing expenses. In
1995, sales of licensed products were $8.1 million or 4.9% of 1995 total net
sales.
40
<PAGE> 44
EMPLOYEES
As of September 30, 1996, the Company had approximately 1,100 employees,
none of whom is represented by a labor union. The Company considers its
relationship with its employees to be good.
FACILITIES
The Company maintains its corporate headquarters in Elmsford, New York and
conducts its principal design, manufacturing and distribution operations at the
following facilities:
<TABLE>
<CAPTION>
OWNED OR LEASED (WITH
LOCATION PRINCIPAL ACTIVITY SQUARE FEET EXPIRATION DATE)
- ------------------------- --------------------- -------------------- -------------------------
<S> <C> <C> <C>
Elmsford, New York(1) Executive Offices; 45,000 square feet Leased (expiration date:
design and art February 28, 2001)
production of paper
party products and
decorations
Harriman, New York Manufacture of paper 75,000 square feet Leased (expiration date:
napkins and cups March 31, 1999)
Providence, Rhode Island Manufacture and 51,000 square feet Leased (expiration date:
distribution of June 30, 2008)
plastic plates, cups
and bowls
Louisville, Kentucky Manufacture and 183,000 square feet Leased (expiration date:
distribution of paper March 31, 1997)
plates
Anaheim, California Manufacture of 25,000 square feet Leased (expiration date:
novelty items February 28, 1999)
Temecula, California(2) Distribution of party 212,000 square feet Leased (expiration date:
products and February 28, 2000)
decorations
Goshen, New York Distribution of party 130,000 square feet Leased (expiration date:
products and December 31, 1998)
decorations
Chester, New York(3) Distribution of party 287,000 square feet Owned
products and
decorations
Montreal, Canada(4) Distribution of party 124,000 square feet Owned
products and
decorations
Milton Keynes, England Distribution of party 30,000 square feet Leased (expiration date:
products and March 31, 2016)
decorations
throughout United
Kingdom and Europe
Melbourne, Australia Distribution of party 10,000 square feet Owned
products and
decorations in
Australia and Asia
</TABLE>
- ---------------
(1) Property leased by the Company from a limited liability company which is
79%-owned by a trust established for the benefit of John A. Svenningsen's
children, 20%-owned by a trust established for the benefit of Mr.
Svenningsen's sister's children and 1%-owned by a corporation owned by Mr.
Svenningsen. See "Certain Related Transactions."
41
<PAGE> 45
(2) Property leased by the Company from John A. Svenningsen. See "Certain
Related Transactions."
(3) Property subject to a ten-year mortgage made by the Company securing a loan
in the original principal amount of $5,925,000 bearing interest at a rate
of 8.51%. Such mortgage commenced on September 14, 1994.
(4) Property subject to a mortgage made by the Company securing a loan in the
original principal amount of $2,088,000. Such mortgage bears an interest
rate at the lower of Hong Kong Bank of Canada's Cost of Funds plus 1.6% or
Canadian Prime plus 0.5%.
The Company believes that its properties have been adequately maintained,
are in generally good condition and are suitable for the Company's business as
presently conducted. The Company believes its existing facilities provide
sufficient production capacity for its present needs and for its anticipated
needs in the foreseeable future. To the extent such capacity is not needed for
the manufacture of the Company's products, the Company generally uses such
capacity for the manufacture of products for others pursuant to terminable
contracts. Currently, all properties generally are being used on a basis of two
shifts out of a maximum potential capacity of three shifts per day. The Company
also believes that upon the expiration of its current leases, it either will be
able to secure renewal terms or enter into leases for alternative locations at
market terms.
LEGAL PROCEEDINGS
Neither the Company nor any of its subsidiaries is a party to any material
pending legal proceedings.
42
<PAGE> 46
MANAGEMENT OF THE COMPANY
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company and their respective
ages and principal positions with the Company are set forth below. Each director
and executive officer has held such positions with the Company set forth below
since October, 1996, the month during which the Company was incorporated.
<TABLE>
<CAPTION>
YEAR OF EXPIRATION
NAME AGE POSITION OF TERM AS DIRECTOR
- ------------------------- --- ------------------------------------ -------------------
<S> <C> <C> <C>
John A. Svenningsen...... 65 Chairman of the Board of Directors, 1999
Chief Executive Officer and
Secretary
Gerald C. Rittenberg..... 44 Director and President 1998
Christine Svenningsen.... 39 Director 1997
William S. Wilkey........ 40 Senior Vice President -- Sales and --
Marketing
James M. Harrison........ 44 Chief Financial Officer and --
Assistant Secretary
</TABLE>
JOHN A. SVENNINGSEN is the Chairman of the Board of Directors and Chief
Executive Officer of Amscan Inc. He has served as Chief Executive Officer of
Amscan Inc. since 1958 and served as President from 1958 to April 1996.
GERALD C. RITTENBERG has served as the President of Amscan Inc. since April
1996. From 1991 to April 1996, he was Executive Vice President -- Product
Development of Amscan Inc. and from 1990 to 1991 he was Vice
President -- Product Development of Amscan Inc. From 1988 to 1989, Mr.
Rittenberg was Senior Vice President of Different Looks, a division of Berwick
Industries which manufactures and distributes gift wrap and related products.
Prior thereto, Mr. Rittenberg was the Director of Operations for the packaging
division of Philip Morris Companies Inc.
CHRISTINE SVENNINGSEN served as product manager in charge of product
development of Amscan Inc. from July 1980 to February 1991. It is expected that
Mrs. Svenningsen will resign her position as a director of the Company prior to
the consummation of the Offering. Mrs. Svenningsen is the wife of John A.
Svenningsen.
WILLIAM S. WILKEY has served as the Senior Vice President -- Sales of
Amscan Inc. since 1992 and as Vice President -- Marketing and Field Sales from
1990 to 1992. From 1988 to 1990, Mr. Wilkey was employed by Paper Art, a
manufacturer and distributor of party goods (currently called Creative
Expressions Group), where he served as National Sales Manager.
JAMES M. HARRISON has served as the Chief Financial Officer of Amscan Inc.
since August 1996. From 1993 to 1995, Mr. Harrison was the Executive Vice
President and Chief Operating Officer, Secretary and Treasurer and a member of
the Board of Directors of The C.R. Gibson Company, a manufacturer and
distributor of paper gift products. From 1988 to 1993, Mr. Harrison was the
Chief Financial Officer of The C.R. Gibson Company.
COMMITTEES OF THE BOARD OF DIRECTORS
The Company intends to establish a Compensation Committee and an Audit
Committee and has established a Stock Option Committee. The Compensation
Committee will be composed of at least two directors, at least a majority of
whom will not be officers or employees of the Company. It will approve and
recommend to the Board of Directors the compensation arrangements for key
management personnel of the Company and its subsidiaries and will be responsible
for making recommendations to the Board of Directors regarding the adoption of
compensation plans for the benefit of directors, officers and other key
employees of the Company and its subsidiaries.
The Audit Committee will be composed of at least two directors who are not
officers or employees of the Company and will be responsible for recommending to
the Board of Directors the
43
<PAGE> 47
selection of independent auditors, consulting with the auditors on the plan of
audit, reviewing with the auditors the proposed audited financial statements of
the Company and reviewing and consulting on the adequacy of the Company's
internal controls.
The Stock Option Committee is responsible for administering the Company's
1996 Stock Option Plan for Key Employees (the "Stock Option Plan") as more fully
described under " -- Stock Option Plan -- Description of Plan." The Stock Option
Committee currently consists of Mr. Svenningsen, but, after consummation of the
Offering, its membership will be comprised of non-employee directors.
EXECUTIVE COMPENSATION
The following table sets forth information concerning the compensation
earned for the year ended December 31, 1995 for the Chief Executive Officer and
each of the other executive officers of the Company as of December 31, 1995,
whose aggregate salary and bonus exceeded $100,000. The amounts shown include
compensation for services in all capacities that were provided to the Company or
its subsidiaries. The amounts set forth in the table include payments under
arrangements which will terminate prior to the Offering. Mr. Harrison is not
listed, since his employment agreement commenced August 1, 1996. In addition,
the executive officers of the Company will participate in the ESOP and the
special one-time contribution to the ESOP. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Financial Impact of
Organization of the Company -- Establishment of an Employee Stock Ownership Plan
and Payment of Stock Bonuses."
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION ALL OTHER
------------------------- COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) ($)(1)
- -------------------------------------------- ---- ---------- ---------- ------------
<S> <C> <C> <C> <C>
John A. Svenningsen......................... 1995 289,399 10,000,000(2) 10,614
Chief Executive Officer
Gerald C. Rittenberg........................ 1995 200,269 1,682,000(3) 4,317
Executive Vice President
William S. Wilkey........................... 1995 172,500 757,000(4) 4,317
Senior Vice President -- Sales
</TABLE>
- ---------------
(1) Represents contributions by the Company in respect of the named officer
under the Profit Sharing and Savings Plan maintained by the Company's
principal subsidiary, Amscan Inc., as well as insurance premiums paid by the
Company with respect to term life insurance for the benefit of the named
executive officer.
(2) Prior to the Offering, certain entities which are now subsidiaries of the
Company elected to be taxed as Subchapter S corporations under the Internal
Revenue Code. This amount represents a distribution to Mr. Svenningsen to
enable him to pay personal income taxes on the earnings of those entities
and amounts lent back to the Company as subordinated indebtedness.
(3) Represents bonuses paid to Mr. Rittenberg pursuant to his prior employment
agreement with Amscan Inc. which will terminate upon consummation of the
Offering. See " -- Employment Agreements."
(4) Represents bonuses paid to Mr. Wilkey pursuant to an employment agreement
with Amscan Inc. which will expire on December 31, 1996.
EMPLOYMENT AGREEMENTS
Set forth below are descriptions of the Company's employment agreements
with John A. Svenningsen, Gerald C. Rittenberg, William S. Wilkey and James M.
Harrison.
44
<PAGE> 48
JOHN A. SVENNINGSEN. In conjunction with the Offering, Mr. Svenningsen has
entered into an employment agreement with the Company for a term of three years
commencing upon consummation of the Offering. Pursuant to the terms of this
Agreement, Mr. Svenningsen will serve as Chief Executive Officer and Chairman of
the Board of Directors of the Company. The agreement provides for a base annual
salary of $300,000, which will be increased by 5% each successive year during
the term of the agreement. The Company may terminate Mr. Svenningsen's
employment upon Mr. Svenningsen's death or for "cause." Upon termination of
employment, Mr. Svenningsen may not, for a period of three years, be employed by
or associated in any manner with any other business which is competitive with
the Company.
GERALD C. RITTENBERG. Mr. Rittenberg has entered into a new employment
agreement with the Company in connection with the Offering, for a term of three
years commencing upon consummation of the Offering. Under the terms of this
agreement Mr. Rittenberg is employed as President of the Company at a base
annual salary of $220,000. Mr. Rittenberg's salary shall be increased by 5% each
successive year during the term of the agreement. This agreement may be
terminated by the Company upon the death of Mr. Rittenberg or for "cause." The
agreement also provides that upon termination of employment, Mr. Rittenberg may
not be employed by or be associated in any manner with any other business which
is competitive with the Company for a period of three years.
This agreement was made in conjunction with an agreement among Amscan Inc.,
Mr. Svenningsen and Mr. Rittenberg whereby Mr. Rittenberg agreed to terminate
his prior employment agreement which provided for Mr. Rittenberg to receive (a)
a bonus in an amount equal to 10% of the aggregate net profits of Amscan Inc.
and certain affiliates (as defined in the agreement), (b) 5% of the net selling
price upon the sale of Amscan Inc. or the sale by Mr. Svenningsen of
substantially all of his stock in Amscan Inc. and (c) in the event of an initial
public offering of the stock of Amscan Inc., shares of the stock of Amscan Inc.
equal to 5% of the shares of stock of Amscan Inc. issued and outstanding
immediately following the consummation of the initial public offering. In
exchange for the relinquishment of such rights, Mr. Rittenberg received a cash
payment of $3.4 million and a number of shares of stock of Amscan Inc., which
shares he exchanged for 660,000 shares of Common Stock representing 3% of the
Common Stock to be outstanding upon consummation of the Offering (assuming the
Underwriters' over-allotment option is not exercised). To the extent that the
net proceeds from the Offering (including any net proceeds of the exercise of
the Underwriters' over-allotment option) exceeds $69 million, Mr. Rittenberg
will be entitled to an additional cash payment equal to 5% of such excess. The
Company has granted Mr. Rittenberg certain rights to require the Company to
register the offer and sale of Mr. Rittenberg's Common Stock under the
Securities Act. See "Shares Eligible for Future Sale." It is estimated that Mr.
Rittenberg's salary and bonus for 1996 under his prior employment agreement will
be $211,000 and $2,800,000, respectively.
WILLIAM S. WILKEY. Mr. Wilkey has entered into an employment agreement
dated October 3, 1996, which will commence on January 1, 1997. Under the terms
of this agreement Mr. Wilkey will be employed as Senior Vice President -- Sales
and Marketing of the Company for a period of five years. Mr. Wilkey will receive
an initial base salary of $200,000 for 1997, which will be increased by 5% each
successive year during the term of the agreement. In addition, Mr. Wilkey is
entitled to receive an annual bonus which will be determined by a formula which
takes into account the amount by which sales and profits are increased on a year
to year basis. Mr. Wilkey also will receive in conjunction with the Offering an
initial grant of stock options in respect of 100,000 shares of Common Stock
under the Stock Option Plan. See "-- Stock Option Plan." Mr. Wilkey's agreement
also provides that upon termination of employment he may not for a period of
three years be employed by or associated in any manner with any business which
is competitive with the Company. This agreement may be terminated by the Company
upon the death or permanent disability of Mr. Wilkey or for "cause." Mr.
Wilkey's current agreement, which expires on December 31, 1996, provides that in
addition to a base salary, he is entitled to receive an amount equal to 5% of
the aggregate net profits of Amscan Inc. and certain affiliates. It is estimated
that Mr. Wilkey's salary
45
<PAGE> 49
and bonus for 1996 under the agreement which will expire December 31, 1996 will
be $181,000 and $1,400,000, respectively.
JAMES M. HARRISON. Mr. Harrison has entered into an agreement with Amscan
Inc. whereby he is employed as the Chief Financial Officer of Amscan Inc. The
agreement, which commenced August 1, 1996, provides for a base salary of
$150,000 and a guaranteed bonus for the first year of $50,000. The agreement has
a term of one year to be automatically renewed for successive one year periods
in the absence of the termination of the agreement by either of the parties
thereto in accordance with its terms. The agreement, which may be terminated by
Amscan Inc. at any time upon the payment of one year's salary, provides for
termination without any additional compensation upon the death or permanent
disability of Mr. Harrison or for "cause." Under the terms of the agreement,
upon termination of employment, Mr. Harrison may not, for a period of one year,
be employed by or associated in any manner with any business which is
competitive with Amscan Inc. Prior to consummation of the Offering, Mr. Harrison
will be granted an option to purchase 50,000 shares of Common Stock under the
Stock Option Plan. See " -- Stock Option Plan."
COMPENSATION OF DIRECTORS
Employee directors receive no additional compensation for serving on the
Board of Directors or its committees. The Company anticipates that it will
compensate directors who are not employees of the Company pursuant to
arrangements established once such directors are elected. All directors will be
reimbursed for expenses incurred in attending Board of Directors and committee
meetings.
STOCK OPTION PLAN
DESCRIPTION OF PLAN
The Stock Option Plan is administered by the Stock Option Committee (the
"Stock Option Committee") of the Board of Directors of the Company, a committee
which, following consummation of the Offering, will be composed of at least two
members appointed by the Board of Directors from among those directors who are
Non-Employee Directors (as defined). Prior to consummation of the Offering, the
Stock Option Committee was composed of a single director, John A. Svenningsen.
None of the members of the Stock Option Committee receives any additional
compensation for the administration of the Stock Option Plan.
The Stock Option Committee has plenary authority in its discretion, but
subject to the express provisions of the Stock Option Plan, to determine the
employees to whom, and the time or times at which, stock options are granted, as
well as the terms and provisions governing each such option. The Stock Option
Committee has further plenary authority at its discretion to interpret the Stock
Option Plan, and to prescribe, amend and rescind rules and regulations relating
to it. Additionally, the Stock Option Committee is generally responsible for the
administration of the Stock Option Plan. The Stock Option Committee's
determinations as to the foregoing matters are conclusive.
Two million shares of the authorized but unissued Common Stock have been
reserved for issuance under the Stock Option Plan. In lieu of such unissued
shares, the Company may, in its discretion, transfer to an optionee, upon the
exercise of options, reacquired shares or shares bought in the market for the
purposes of the Stock Option Plan, provided that (subject to adjustments upon
changes in capitalization) the total number of options which may be granted and
the number of shares which may be sold pursuant to options granted under the
Stock Option Plan shall not exceed 2,000,000. If any options granted under the
Stock Option Plan terminate or expire for any reason without having been
exercised or vested in full, the Common Stock not delivered under such options
will be available again for purposes of the Stock Option Plan. Based on an
initial public offering price of $13 (the mid-point of the range of public
offering prices set forth on the cover page of this Prospectus), the fair market
value of 2,000,000 shares of Common Stock is $26,000,000. No stock options may
be granted under the Stock Option Plan after November 27, 2006.
46
<PAGE> 50
Under the Stock Option Plan, stock options may be granted only to regular,
salaried employees (including officers and directors) of the Company or its
subsidiaries whom the Stock Option Committee considers key employees. In
determining the employees to whom such options are to be granted, as well as
their terms and conditions, the Stock Option Committee takes into account the
duties of the respective employees, their present and potential contributions to
the success of the Company, and such other factors as the Stock Option Committee
deems relevant in connection with accomplishing the purpose of the Stock Option
Plan. An existing optionee may be granted and hold an additional option or
options if the Stock Option Committee shall so determine. All of the foregoing
determinations are within the discretion of the Stock Option Committee.
Under the Stock Option Plan, both incentive stock options and non-qualified
options may be granted to employees of the Company. The Stock Option Plan
requires that the purchase price of the Common Stock covered by stock options
granted thereunder be not less than 100% (or pursuant to Section 422 of the
Internal Revenue Code, 110% in the case of an incentive stock option granted to
a 10% shareholder) of the fair market value of the Common Stock on the date of
the grant.
The term of each option is for such period as the Stock Option Committee
determines but, notwithstanding the foregoing, the term of no option may be more
than ten years from the date of grant thereof (or 5 years from the date of grant
of the option in the case of an incentive stock option granted to a 10%
shareholder).
Unless otherwise determined by the Stock Option Committee, one-quarter
(25%) of the total number of shares of Common Stock covered by an option granted
to an employee of the Company or its subsidiaries becomes exercisable upon such
employee's completion of one year of continuous service with the Company or its
subsidiary after the grant of the option; thereafter, an additional one-quarter
(25%) of the total number of shares of Common Stock covered by the option
becomes exercisable upon such employee's completion of two, three and four years
of continuous service with the Company or its subsidiaries, respectively. Once
an option or part thereof becomes exercisable, it will remain exercisable until
expiration of the option, unless otherwise specified by the Stock Option
Committee. An option may be exercised during the lifetime of an optionee only by
such optionee, and an option granted under the Stock Option Plan is not
transferable other than by will or pursuant to the laws of descent and
distribution or pursuant to a qualified domestic relations order. No option may
be exercised at any time except by an optionee who is then a regular employee of
the Company, except as provided in the Stock Option Plan. The holder of an
option has none of the rights of a stockholder with respect to the shares
subject to option until such shares are registered upon the exercise of the
option on the transfer books of the Company in the name of the holder.
Unless otherwise provided in an option agreement, a holder of an option may
purchase all, or from time to time any part of, the shares which the optionee
has become entitled to purchase. An option may not, however, be exercised as to
fewer than 50 shares, or the remaining shares covered by the option if fewer
than 50, at any one time. The purchase price of the shares as to which an option
is exercised must be paid in full at the time of exercise at the election of the
holder of an option (a) in cash or currency of the United States of America, (b)
by tendering to the Company shares of the Company's Common Stock then owned by
the holder, having a fair market value equal to the cash exercise price
applicable to the purchase price of the shares as to which the option is being
exercised or (c) partly in cash and partly in shares of the Company's Common
Stock valued at fair market value. Fractional shares of Common Stock will not be
issued. Notwithstanding the foregoing, the Stock Option Committee has the right
to modify, amend or cancel the right to pay the option price other than in full
in cash by giving prior notice to each holder of an option. Neither the Company,
any company with which it is affiliated, nor any of its subsidiaries may
directly or indirectly lend money to any person for the purpose of assisting
said person to acquire or carry shares of Common Stock issued by the exercise of
options.
Any outstanding option granted under the Stock Option Plan becomes fully
and immediately exercisable upon the occurrence of a tender offer or exchange
offer made by any "person" within
47
<PAGE> 51
the meaning of Section 14(d) of the Securities Exchange Act of 1934 or a "change
in control" (as such term is defined in the Stock Option Plan); provided,
however, that if in the opinion of counsel to the Company the immediate
exercisability of an option, when taken into consideration with all other
"parachute payments," as defined in Section 280G(b) of the Internal Revenue
Code, would result in "excess parachute payments," as defined in such Section,
an option will not become immediately exercisable, except as and to the extent
the Stock Option Committee in its discretion otherwise determines. The Stock
Option Committee may provide for the acceleration of vesting of options under
such other circumstances as the Stock Option Committee may determine in its sole
discretion. The Stock Option Committee may adopt such procedures as to notice
and exercise as may be necessary to effectuate the acceleration of the
exercisability of options as described above.
If an optionee's employment is terminated (other than by retirement,
disability or death), options held by the optionee are, subject to certain
conditions contained in the Stock Option Plan, exercisable (to the extent that
the optionee would be entitled to do so at the termination of his employment
unless otherwise determined by the Committee) for 30 days after such termination
(or for such other period as may be specified by the Committee), but not later
than the expiration of the term of the option. Notwithstanding the foregoing, in
the event an optionee is discharged for cause (as such term is defined in the
Stock Option Plan), the unexercised portion of an option terminates immediately,
except as otherwise provided by the Committee. If the optionee has exercised all
or part of an option within 15 days of notice of discharge for cause and the
Company has not yet delivered Common Stock pursuant to such exercise, such
exercise will be deemed invalid and any purchase price tendered by the optionee
for Common Stock will be refused or, if previously paid, will be returned to the
optionee.
If an employee to whom an option has been granted under the Stock Option
Plan retires from the Company or its subsidiaries at normal retirement date
pursuant to any pension plan provided by the Company or its subsidiaries, or
retires earlier than the employee's normal retirement date with the prior
consent of the Company, such option may be fully exercised without regard to the
period of continuous employment after the option was granted, at any time within
90 days after such retirement (or for such other period as may be specified by
the Committee), but in no event after the expiration of the term of the option.
If the employment of anyone to whom an option has been granted under the
Stock Option Plan terminates by reason of that employee's disability (within the
meaning of Section 22(e)(3) of the Internal Revenue Code) and while such
employee is entitled to exercise such option as herein provided, such employee
shall have the right to exercise such option at any time within 90 days after
the date of such termination (or for such other period as may be specified by
the Committee) but in no event after the expiration of the term of the option.
If an employee to whom an option has been granted under the Stock Option
Plan dies while he is employed by the Company or its subsidiaries, or during
either the 90-day period following normal retirement or the 90-day period
following disability retirement, such option may be exercised to the extent the
optionee was entitled to do so at the date of death unless otherwise determined
by the Committee at the time such option was granted, by his executor or
administrator or other person at the time entitled by law to the employee's
rights under the option, at any time within such period (not exceeding one year
after death or for such other period as may be specified by the Committee) as is
prescribed in the option agreement, but in no event after the expiration of the
term of the option.
In the event of any change in the outstanding shares of Common Stock
through merger, consolidation, reorganization, recapitalization, stock dividend,
stock split, split-off, spin-off, combination or exchange of shares, or other
like change in the capital structure of the Company, an adjustment shall be made
to each outstanding option such that each such option shall thereafter be
exercisable in respect of the shares of Common Stock subject to such option had
such option been exercised in full immediately prior to such change. The Stock
Option Committee shall also, in the event of such change, make any further
appropriate adjustments to the maximum number of shares
48
<PAGE> 52
of Common Stock which may be acquired under the Plan pursuant to the exercise of
Options and the number of shares of Common Stock and price per share subject to
outstanding options as shall be equitable to prevent dilution or enlargement of
rights under such options.
In connection with any stock option, the Stock Option Committee may, in its
discretion, permit an employee to satisfy any withholding tax obligation which
may arise in connection with an option by electing to have the Company withhold
Common Stock having a fair market value (calculated as of the date the amount of
withholding tax is determined) equal to the amount of the withholding tax.
Stock options are not affected by changes of duties or position so long as
the optionee continues to be an employee of the Company or one of its
subsidiaries. Nothing in the Stock Option Plan or in any option agreement
confers upon any employee any right to continue in the employ of the Company or
one of its subsidiaries or interferes in any way with any right the Company or
its subsidiaries may have to terminate his employment at any time.
The Stock Option Plan provides that the Board of Directors may amend or
terminate the Stock Option Plan in any respect; provided, however, that except
with respect to adjustments upon changes in capitalization, without further
approval of the holders of Common Stock, the Board of Directors may not increase
the maximum number of shares for which stock options may be granted under the
Stock Option Plan, change the manner of determining the minimum option prices,
extend the period during which an option may be granted or an option may be
exercised, or amend the provisions of the Stock Option Plan as to the class of
employees eligible to receive options. No termination, modification or amendment
of the Stock Option Plan may, without the consent of the optionee, adversely
affect the rights of such optionee.
Pursuant to the Stock Option Plan, options will be granted in conjunction
with the Offering to Mr. Wilkey and Mr. Harrison for 100,000 and 50,000 shares
of Common Stock, respectively. Such options will have an exercise price per
share equal to the initial public offering price set forth on the cover page of
this Prospectus and a term of 10 years from the date of grant. Options to
purchase an additional 250,000 shares of Common Stock will be granted in
conjunction with the Offering to employees of the Company or its subsidiaries
who are not executive officers of the Company. Such additional options will also
have an exercise price per share equal to the initial public offering price set
forth on the cover page of this Prospectus and a term of 10 years from the date
of grant. (Such options will in no event become exercisable prior to one year
after the grant thereof.) To the extent permitted under the Internal Revenue
Code, such options will be incentive stock options, and the balance, if any,
will be non-qualified stock options. There is no other current agreement to
grant additional options pursuant to the Stock Option Plan.
FEDERAL TAX CONSEQUENCES OF PLAN
Counsel for the Company has advised that the federal income tax
consequences of stock options granted under the Stock Option Plan are as
follows:
INCENTIVE STOCK OPTIONS. Neither the grant nor exercise of an incentive stock
option will generally have any federal income tax consequences for an optionee.
The amount by which the fair market value of the shares acquired upon the
exercise of any incentive stock option exceeds the option price as of the date
of exercise, however, is an item of "tax preference" for purposes of computing
the alternative minimum tax on individuals.
If an optionee has held the shares acquired on the exercise of an incentive
stock option for at least two years from the date of the grant of the option and
at least one year from the date of exercise, the optionee will recognize taxable
long-term capital gain or loss upon a subsequent disposition of the shares. In
such circumstances, no deduction would be allowed to the Company for federal
income tax purposes in connection with the grant or exercise of the option or
the transfer of shares acquired upon such exercise.
49
<PAGE> 53
If, however, the employee disposes of his shares within the holding periods
described above, which would include the use of such shares to exercise a second
stock option, (i) the employee will recognize ordinary income in an amount equal
to the difference between the fair market value of such shares on the date of
exercise (or such later time as the shares become nontransferable or not subject
to a substantial risk of forfeiture) and the option price, provided that, if the
disposition is a sale or exchange with respect to which a loss (if sustained)
would be recognized by the employee and the amount realized from such sale or
exchange is less than the fair market value on the exercise date, then the
ordinary income will be limited to the excess of the amount realized upon the
sale or exchange of the shares over the option price; (ii) the Company will be
entitled to a deduction for such year in the amount of the ordinary income so
recognized; (iii) the employee will recognize capital gain or loss, short-term
or long-term, as the case may be, in an amount equal to the difference between
the amount realized upon such sale or exchange of the shares and the sum of the
option price plus the amount of ordinary income, if any, recognized upon such
disposition. Any such capital gain or loss will be long-term gain or loss if the
shares with respect to which such gain or loss is recognized have been held for
more than one year.
NON-QUALIFIED STOCK OPTIONS. The grant of a non-qualified stock option
would have no federal income tax consequences to the Company or to the employee.
An optionee would recognize taxable ordinary income at the time of exercise of
the option (or at such later time as the shares become nontransferable or not
subject to a substantial risk of forfeiture) in an amount equal to the excess of
the fair market value of the shares acquired at the time of exercise (or such
later time) over the option price, and the Company would be entitled to a
deduction in such amount, provided that such compensation is reasonable and the
Company withholds any applicable federal income tax. The optionee may be
required upon the exercise of a non-qualified option to deposit with the Company
an amount equal to the federal income tax required to be withheld.
Alternatively, the Company may elect to withhold a number of shares otherwise
transferable upon exercise of the option having a fair market value equal to the
amount required to be withheld. Any amounts so deposited will be remitted by the
Company to the Internal Revenue Service.
The holder of shares acquired upon exercise of a non-qualified option will
upon a subsequent disposition of such shares generally recognize a short-term or
long-term capital gain or loss, depending upon the holding period of the shares,
equal to the difference between the amount realized on the sale and the basis in
such shares (the sum of the option price and the amount taxed as ordinary income
at the time of exercise).
ALL OPTIONS. A number of special rules apply to the use of previously
acquired stock to exercise incentive or non-qualified stock options or to
satisfy any attendant federal income tax withholding obligation.
It should be noted that, under the Internal Revenue Code, to the extent
that option exercise is accelerated on account of a change in control of the
Company, the value of the acceleration of vesting would be treated as a
"parachute payment," which may subject the employee to an excise tax and be
nondeductible by the employer. Such consequences would only follow, however, if
the total "parachute payments" (including the value of the acceleration) were of
sufficient magnitude to constitute "excess parachute payments" under the
Internal Revenue Code. Furthermore, amounts constituting "reasonable
compensation" are not subject to the rules relating to "excess parachute
payments," and the Committee Report to the Tax Reform Act of 1984 indicates that
the benefit of acceleration of exercise of stock options issued as part of a
normal compensation package granted more than one year before the change in
control presumptively constitutes reasonable compensation.
50
<PAGE> 54
PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding the beneficial
ownership of Common Stock as of the day prior to the date hereof and after the
consummation of the Offering, respectively, by (i) each director and named
executive officer and (ii) all directors and executive officers as a group.
Unless otherwise indicated, each person or entity has sole voting power and
investment power with respect to the shares attributed to such person or entity.
No person other than Mr. Svenningsen owns more than 5% of the outstanding shares
of Common Stock.
<TABLE>
<CAPTION>
PRIOR TO THE DATE HEREOF AFTER THE OFFERING
-------------------------------- --------------------------------
SHARES BENEFICIALLY PERCENT OF SHARES BENEFICIALLY PERCENT OF
NAME OWNED CLASS OWNED CLASS(4)
------------------------- ------------------- ---------- ------------------- ----------
<S> <C> <C> <C> <C>
John A. Svenningsen...... 15,182,308(1) 92.5% 15,182,308(1) 69.0%
Gerald C. Rittenberg..... 660,000(2) 4.0% 660,000(2) 3.0%
William S. Wilkey........ 0 -- 0 --
James M. Harrison........ 0 -- 0 --
Christine Svenningsen.... 0(3) -- 0(3) --
All directors and
executive officers
as a group............. 15,842,308 96.5% 15,842,308 72.0%
</TABLE>
- ---------------
(1) Includes 128,572 shares owned in the aggregate by the SSY Trusts for which
Mr. Svenningsen is a co-trustee.
(2) Mr. Svenningsen and Mr. Rittenberg have entered into an agreement pursuant
to which Mr. Svenningsen has agreed to lend Mr. Rittenberg up to $4 million
to enable Mr. Rittenberg to pay taxes on the shares of Common Stock received
by Mr. Rittenberg in the Organization. Such loan, if made, would have a term
of 30 months and bear interest at the 90-day LIBOR rate plus 0.125%. Mr.
Rittenberg would have the right to pay all or any portion of the loan by
delivering shares of Common Stock to Mr. Svenningsen based on the fair
market value of the Common Stock on the date of repayment. If Mr. Rittenberg
were to borrow the money from Mr. Svenningsen and repay it by delivering
shares of Common Stock, the number of shares of Common Stock beneficially
owned by Mr. Rittenberg would be reduced and the number owned by Mr.
Svenningsen would be correspondingly increased. Mr. Svenningsen and Mr.
Rittenberg have also entered into an agreement pursuant to which Mr.
Rittenberg would be entitled to receive 5% of the net proceeds from any sale
of Common Stock by Mr. Svenningsen, his wife, his issue or his estate, which
occurs at any time during a period not exceeding six years commencing upon
the consummation of the Offering.
(3) Christine Svenningsen is the wife of John A. Svenningsen. As the wife of Mr.
Svenningsen, Christine Svenningsen may be deemed to own the shares of Common
Stock beneficially owned by Mr. Svenningsen.
(4) The percentages are calculated on the basis of the number of shares of
Common Stock issued in the Organization and the shares offered hereby
(assuming no exercise of the Underwriters' over-allotment option) and
assuming issuance of shares in connection with the ESOP and the employee
stock bonuses.
51
<PAGE> 55
CERTAIN RELATED TRANSACTIONS
The Company leases certain of its facilities from Mr. Svenningsen or from
entities that Mr. Svenningsen either owns directly or in which he has a direct
or indirect beneficial interest. The Company pays rent and expenses for those
facilities on terms which it believes are at least as favorable to the Company
as the terms which would have been available for leases negotiated with
unaffiliated persons at the inception of each lease. Mr. Svenningsen has
indicated that he will recuse himself from any decision of the Board of
Directors of the Company relating to the terms and conditions of any such
leases, or any renewals thereof.
In March, 1996, the Company began leasing approximately 45,000 square feet
for the Company's administrative headquarters in an office building of
approximately 90,000 square feet in Elmsford, New York. The building is owned by
a limited liability company which is 79%-owned by a trust established for the
benefit of Mr. Svenningsen's children, 20%-owned by a trust established for the
benefit of Mr. Svenningsen's sister's children and 1%-owned by a corporation
owned by Mr. Svenningsen. Rent expense relating to this lease was $502,000 for
the nine months ended September 30, 1996. This lease, as amended, provides for
annual rent of $1,003,000 and has a term which expires on February 28, 2000. In
addition, the Company has options to renew for three five-year periods at market
rental. Prior to this, the Company's headquarters had been in a facility owned
by Mr. Svenningsen. Rent expense related to that facility was $411,000,
$432,000, $453,000 and $196,000 for the years ended December 31, 1993, 1994,
1995, and the nine months ended September 30, 1996, respectively.
The Company leases a 212,000 square foot warehouse in Temecula, California
from Mr. Svenningsen. Rent expense related to this warehouse was $439,000,
$462,000 $483,000 and $889,000 for the years ended December 31, 1993, 1994,
1995, and the nine months ended September 30, 1996, respectively. The expiration
date of this lease, as amended, is February 28, 2000; however, the Company has
options to renew at market rental for two additional five-year periods.
The Company and Mr. Svenningsen have entered into an agreement pursuant to
which Mr. Svenningsen may seek reimbursement from the Company for any income tax
obligation attributable to any period prior to the Organization (including any
gross-up for additional taxes), but only to the extent that such tax is
attributable to income that was not distributed to Mr. Svenningsen.
Alternatively, in the event that the status of Amscan Inc., Am-Source, Inc., JCS
Realty Corp. or SSY Realty Corp. as a Subchapter S corporation is not respected,
the Company may seek reimbursement from Mr. Svenningsen, but only to the extent
that Mr. Svenningsen is entitled to a tax refund attributable to amounts he
previously included in income in his capacity as a shareholder of such
corporations.
Ya Otta Pinata, a California corporation which is 50% owned by Mr.
Svenningsen ("Ya Otta"), manufactures pinatas which historically have been sold
by the Company's sales force with no commissions charged to Ya Otta. Mr.
Svenningsen will retain his ownership in Ya Otta and Ya Otta will not be part of
the Organization. After the Organization, the Company's sales force will
continue to sell pinatas manufactured by Ya Otta. On any sales after the
Organization, the Company will receive a sales commission in the range of 7% to
10%. For the year ended December 31, 1995, sales by Ya Otta were approximately
$2.2 million.
The Company has agreed to indemnify each director pursuant to an
Indemnification Agreement with such director from and against any and all
expenses, losses, claims, damages and liabilities incurred by such director for
or as a result of actions taken or not taken while such director was acting in
his or her capacity as a director of the Company.
See also, "Organization of the Company" and "Management of the
Company -- Executive Compensation -- Employment Agreements."
52
<PAGE> 56
DESCRIPTION OF THE COMPANY'S CAPITAL STOCK
GENERAL
The Company's authorized capital stock consists of 5,000,000 shares of
Preferred Stock, $0.10 par value, of which no shares are issued and outstanding,
and 50,000,000 shares of Common Stock, $0.10 par value, of which 22,000,000
shares will be issued and outstanding upon completion of the Offering (or
22,802,500 shares if the Underwriters' over-allotment option is exercised in
full). The following description of the Preferred Stock and Common Stock is
qualified in its entirety by reference to the Company's Certificate of
Incorporation and By-Laws, copies of which have been filed as exhibits to the
Registration Statement of which this Prospectus is a part.
PREFERRED STOCK
Pursuant to the Company's Certificate of Incorporation, the Company's Board
of Directors may, without further action by the Company's stockholders, from
time to time issue shares of Preferred Stock and determine the rights,
preferences and limitations of such stock, and may issue such Preferred Stock in
series having differing rights, preferences and limitations. The rights,
preferences and limitations of any Preferred Stock which might be issued could
materially reduce the Company's ability to pay dividends on its shares of Common
Stock, the assets available to common stockholders upon any dissolution and
liquidation of the Company and the voting power of holders of the Common Stock.
Shares of Preferred Stock or rights to purchase such shares could be issued
to create voting impediments or otherwise frustrate persons seeking to effect a
takeover of the Company. Thus, the potential to issue the Preferred Stock could
discourage an attempt by a person to acquire control of the Company by tender
offer or other means and could, therefore, deprive stockholders of benefits that
could result from such an attempt, such as the realization of a premium over the
market price of the shares in a tender offer or the temporary increase in market
price that such an attempt could cause. The issuance of shares of voting
Preferred Stock to persons friendly to the Board of Directors could make it more
difficult to remove incumbent management and directors from office, even if such
removal would be beneficial to stockholders generally.
The Board of Directors believes that the financial flexibility offered by
authorized but unissued Preferred Stock outweighs any of its potential
disadvantages. To the extent it may have anti-takeover effects, the existence of
the Preferred Stock may encourage persons seeking to acquire the Company to
negotiate directly with the Board of Directors, enabling the Board of Directors
to consider the proposed transaction in a non-disruptive atmosphere, and to
discharge effectively its obligation to act on a proposed transaction in a
manner that best serves the stockholders' interests.
COMMON STOCK
Holders of Common Stock are entitled to one vote per share in the election
of directors and on all other matters on which stockholders are entitled or
permitted to vote. Holders of Common Stock are not entitled to vote cumulatively
for the election of directors. Holders of Common Stock have no redemption,
preference, exchange, conversion, preemptive or other subscription rights. There
are no sinking fund provisions relating to the Common Stock. In the event of the
liquidation, dissolution or winding up of the Company, holders of Common Stock
are entitled to share ratably in all of the assets of the Company, if any,
remaining after satisfaction of the debts and liabilities of the Company and the
preferential amounts payable to the holders of the Company's Preferred Stock, if
any. The outstanding shares of Common Stock are, and the shares of Common Stock
offered hereby will be, upon payment therefor as contemplated herein, validly
issued, fully paid and nonassessable.
Holders of Common Stock are entitled to receive dividends when and as
declared by the Board of Directors of the Company out of funds legally available
therefor, subject to the rights of the
53
<PAGE> 57
holders of the Company's Preferred Stock, if any. The Company does not
anticipate paying cash dividends on the Common Stock in the foreseeable future.
As a holding company, the Company's ability to declare and pay cash dividends on
the Common Stock will be substantially dependent on the receipt by the Company
of cash dividends from its subsidiaries. The revolving credit agreement to which
the Company's principal subsidiary is a party prohibits the payment by such
subsidiary of any cash dividends.
CERTAIN PROVISIONS OF DELAWARE LAW AND THE COMPANY'S CERTIFICATE OF
INCORPORATION AND BY-LAWS
The Company is subject to Section 203 of the Delaware General Corporation
Law (the "DGCL"), which restricts certain transactions and "Business
Combinations" (as defined below) between a Delaware corporation and an
"Interested Stockholder" (as defined below). Subject to certain limitations,
such section restricts a Delaware corporation from engaging in various Business
Combination transactions with any Interested Stockholder for a period of three
years after the time of the transaction in which the person became an Interested
Stockholder, unless (i) the transaction is approved by the Board of Directors
prior to the time the Interested Stockholder obtained such status, (ii) upon
consummation of the transaction which resulted in the stockholder becoming an
Interested Stockholder, the Interested Stockholder owned at least 85% of the
voting stock of the corporation outstanding at the time the transaction
commenced (excluding for the purposes of determining the number of shares
outstanding those shares owned by (a) persons who are directors and also
officers and (b) employee stock plans in which employee participants do not have
the right to determine confidentially whether shares held subject to the plan
will be tendered in a tender or exchange offer), or (iii) at or subsequent to
such time the Business Combination is approved by the board of directors and
authorized at an annual or special meeting of stockholders, and not by written
consent, by the affirmative vote of at least two-thirds of the outstanding
voting stock which is not owned by the Interested Stockholder. A Business
Combination includes mergers, asset dispositions, stock transfers and other
transactions resulting in financial benefit to a stockholder. An Interested
Stockholder is a person who (a) owns 15 percent or more of a corporation's
voting stock, or (b) is an affiliate or associate of a corporation, as defined
in the statute, and owned 15 percent or more of a corporation's voting stock
within the preceding three years. Section 203 could prohibit or delay mergers or
other takeover or change in control attempts with respect to the Company and,
accordingly, may discourage attempts to acquire the Company.
The Company's Certificate of Incorporation and By-Laws contain certain
provisions which may be deemed to have an anti-takeover effect that could delay
or prevent a tender offer or takeover attempt that a stockholder might consider
in its best interest, including those attempts that might result in a premium
over the market price for the shares of Common Stock held by stockholders. These
provisions are intended by the Board of Directors to help assure fair and
equitable treatment of the Company's stockholders if a person or group should
seek to gain control of the Company in the future.
CLASSIFIED BOARD OF DIRECTORS
The Certificate of Incorporation provides for the Board of Directors to be
divided into three classes of directors serving staggered three-year terms at
such time as there are three or more directors. As a result, approximately
one-third of the Board of Directors will be elected each year. Moreover, under
the DGCL, in the case of a corporation having a classified board, stockholders
may remove a director only for cause. This provision, when coupled with the
provision of the By-Laws authorizing only the Board of Directors to fill vacant
directorships, will preclude a stockholder from removing incumbent directors
without cause and simultaneously gaining control of the Board of Directors by
filling the vacancies created by such removal with its own nominees, and will
make more difficult, and therefore may discourage, a proxy contest to change
control of the Company.
54
<PAGE> 58
SPECIAL MEETINGS OF STOCKHOLDERS
The By-Laws provide that special meetings of stockholders of the Company
may be called only by the Board of Directors, the Chairman of the Board or the
Chief Executive Officer. This provision will make it more difficult for
stockholders to take actions opposed by the Board of Directors.
STOCKHOLDER ACTION BY WRITTEN CONSENT
The Certificate of Incorporation provides that no action required or
permitted to be taken at any annual or special meeting of the stockholders of
the Company may be taken without a meeting, and the power of stockholders of the
Company to consent in writing, without a meeting, to the taking of any action is
specifically denied.
ADVANCE NOTICE REQUIREMENT FOR STOCKHOLDER PROPOSALS AND DIRECTOR NOMINATIONS
The By-Laws provide that stockholders seeking to bring business before an
annual meeting of stockholders, or to nominate candidates for election as
directors at an annual or special meeting of stockholders, must provide timely
notice thereof, as set forth in the By-Laws, in writing. These notice provisions
are in addition to any other notice requirements provided by applicable law or
regulation. These provisions may preclude some stockholders from bringing
matters before the stockholders at an annual or special meeting or from making
nominations for directors at an annual or special meeting.
The Company's Certificate of Incorporation contains certain provisions
permitted under the DGCL relating to the liability of directors. The Certificate
of Incorporation provides that, to the fullest extent permitted by the DGCL, no
director of the Company will be liable to the Company or its stockholders for
monetary damages for breach of fiduciary duty as a director. The By-Laws provide
that, subject to applicable law, the Company shall (i) indemnify each person who
is or was involved in any legal proceeding because such person is or was a
director, officer, employee or agent of the Company (or is or was serving at the
request of the Company as a director, officer, employee or agent of another
entity) against all expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by him in connection
therewith, and (ii) pay the expenses incurred in defending such proceeding in
advance of its final disposition upon receipt of an undertaking by such person
to repay such expenses in the event it shall be determined that such person is
not entitled to indemnification by the Company. In addition, the By-Laws provide
that (i) the rights to indemnification and payment of expenses so provided are
not exclusive of any other similar right that any person may have or acquire
under any statute or otherwise and (ii) the Company may maintain insurance to
protect itself or its directors, officers, employees or agents against any
liability, whether or not it would have the power to indemnify such person
against such liability pursuant to Delaware law. See also, "Certain Related
Transactions."
In addition to the potential anti-takeover effect, Section 203 and the
provisions of the Company's Certificate of Incorporation and By-Laws described
above could have the effect of inhibiting attempts to change the membership of
the Board of Directors of the Company. In addition, the limitation of liability
provisions in the Certificate of Incorporation and the indemnification
provisions in the Certificate of Incorporation and By-Laws may discourage
stockholders from bringing a lawsuit against directors for breach of their
fiduciary duty (including breaches resulting from grossly negligent conduct) and
may have the effect of reducing the likelihood of derivative litigation against
directors and officers, even though such an action, if successful, might
otherwise have benefited the Company and its stockholders. Furthermore, a
stockholder's investment in the Company may be adversely affected to the extent
the Company pays the costs of settlement and damage awards against directors and
officers of the Company pursuant to the indemnification provisions in the
Company's By-Laws. The limitation of liability provisions in the Certificate of
Incorporation will not limit the liability of directors under federal securities
laws.
55
<PAGE> 59
SHARES RESERVED FOR ISSUANCE
The Company has 2,000,000 shares of Common Stock reserved for issuance upon
the exercise of options granted or to be granted under the Stock Option Plan.
TRANSFER AGENT
The transfer agent and registrar for the Common Stock is ChaseMellon
Shareholder Services L.L.C.
LISTING
The Common Stock has been approved for quotation on The Nasdaq Stock
Market, Inc. under the symbol "AMSN."
SHARES ELIGIBLE FOR FUTURE SALE
Upon consummation of the Offering, the Company will have outstanding a
total of 22,000,000 shares of Common Stock, including the 5,350,000 shares
offered in the Offering (or 22,802,500 shares if the Underwriters'
over-allotment option is exercised in full). The Common Stock sold in the
Offering will be transferable without restriction or further registration under
the Securities Act, except for any shares acquired by an "affiliate" of the
Company that will be subject to the resale limitations of Rule 144 promulgated
under the Securities Act. Of the remaining shares of Common Stock outstanding,
230,769 shares will be owned by the ESOP, which the Company intends to establish
for the benefit of its domestic employees in connection with the consummation of
the Offering, or issued to certain of such employees in connection with stock
bonuses. Upon such consummation, the Company will make a special one-time
contribution to the ESOP of 230,769 shares of Common Stock, subject to reduction
as described in the next sentence, to be allocated to participants' accounts in
accordance with a formula based on compensation and years of service. To the
extent that application of this formula would result in a contribution to the
ESOP on behalf of a participant which would exceed the maximum contribution
permitted under applicable law, the contribution to the ESOP for such
participant will be reduced to the maximum permitted and the balance determined
under the formula will be paid to such participant in the form of a stock bonus.
No additional contributions to the ESOP will be made until 1998 and will then be
dependent upon a number of factors including the Company's performance. See
"Capitalization" and "Dilution." All of the remaining shares outstanding and not
issued in the Offering or owned by the ESOP or certain employees upon payment of
stock bonuses will be owned respectively by Mr. Svenningsen, the SSY Trusts, Mr.
Rittenberg and the other three stockholders of Am-Source, Inc. Such shares, in
addition to the shares owned by the ESOP, will be "restricted" securities within
the meaning of Rule 144 and may not be sold in the absence of registration other
than through Rule 144 described below or another exemption from registration
under the Securities Act.
In general, under Rule 144, as currently in effect, a stockholder who
(together with predecessor holders who were not affiliates of the Company (as
such term is defined in Rule 144 under the Securities Act, "Affiliates")) has
beneficially owned shares of Common Stock which are treated as "restricted
securities" (as defined in Rule 144) for at least two years from the date such
restricted securities were acquired from the Company or an Affiliate, is
entitled to sell, within any three-month period, a number of shares that does
not exceed the greater of 1% of the shares of Common Stock then outstanding or
the average weekly trading volume in the Common Stock during the four calendar
weeks preceding the date on which notice of such sale was filed under Rule 144.
Sales under Rule 144 are also subject to certain provisions relating to the
manner and notice of sale and availability of current public information about
the Company. In addition, Affiliates of the Company must comply with the
restrictions and requirements of Rule 144 (other than the two-year holding
period requirements) in order to sell shares of Common Stock that are not
restricted securities. Furthermore, if a period of at least three years has
elapsed from the date restricted securities were
56
<PAGE> 60
acquired from the Company or an Affiliate, a holder of such restricted
securities who is not an Affiliate at the time of the sale and has not been an
Affiliate for at least three months prior to such sale would be entitled to sell
the shares immediately without regard to the volume limitations and other
conditions described above.
The 15,053,736 shares of Common Stock held by Mr. Svenningsen may be
eligible (subject to the 180-day lock-up arrangement described below) for sale
after the Offering in the public market pursuant to, and in accordance with the
volume, manner of sale and other conditions of, Rule 144 described above.
The Company, Mr. Svenningsen and the SSY Trusts have agreed that for 180
days from the date of this Prospectus they will not offer, sell, contract to
sell or otherwise dispose of any securities of the Company including, but not
limited to, any securities that are exercisable or exchangeable for, that
represent the right to receive or that are convertible into or whose exercise or
settlement price is derivable from the price of Common Stock or other
substantially similar securities without the prior written consent of the
representatives of the Underwriters. See "Underwriting." As part of the
agreement pursuant to which Mr. Rittenberg exchanged his shares of Amscan Inc.
for shares of Common Stock, Mr. Rittenberg agreed not to resell any of such
shares of Common Stock for a period of 12 months from the date of such exchange,
except for transfers to Mr. Svenningsen to repay indebtedness which Mr.
Rittenberg might incur to enable him to pay taxes on the shares of Common Stock
received by him in the Organization pursuant to the agreement described in note
(2) under "Principal Stockholders" and except for gifts of such shares of Common
Stock.
The Company has entered into agreements with two of the three individuals
who held 50% of the capital stock of Am-Source, Inc. (see "Organization of the
Company") and with Gerald C. Rittenberg. Pursuant to these agreements, such
persons have each been granted a one-time right to demand registration of the
offer and sale of Common Stock under the Securities Act and the Company has
agreed to keep any such registration statement effective for a period as is
reasonably necessary to permit the sale of such Common Stock. The Company must
pay registration expenses in connection with the demand registration but in no
event is the Company responsible for the payment of underwriting discounts and
commissions. No such demand may be exercised earlier than one year from
consummation of the Offering.
The Company intends to file a registration statement on Form S-8 covering
the 2,000,000 shares of Common Stock reserved under the Stock Option Plan. Any
shares which become outstanding upon exercise of options under the Stock Option
Plan, other than shares delivered to Affiliates, will be eligible for sale in
the public market beginning on the date of delivery thereof.
Prior to consummation of the Offering, there has been no public market for
the Common Stock, and no prediction can be made as to the effect, if any, that
future sales of shares of Common Stock under Rule 144 or following the exercise
of registration rights, or the availability of such shares for future sale, will
have on the market price of the Common Stock prevailing from time to time.
Nevertheless, sales of a substantial amount of such shares in the public market,
or the perception that such sales could occur, could adversely affect the
prevailing market prices for the Common Stock and could impair the Company's
future ability to raise capital through an offering of its equity securities.
57
<PAGE> 61
VALIDITY OF COMMON STOCK
The validity of the Common Stock will be passed upon for the Company by
Cummings & Lockwood, Stamford, Connecticut, counsel for the Company, and for the
Underwriters by Sullivan & Cromwell, New York, New York, counsel for the
Underwriters.
EXPERTS
The special purpose combined financial statements and schedule of Amscan
Inc. and Affiliates as of December 31, 1994 and 1995, and as of September 30,
1996, and for each of the years in the three-year period ended December 31,
1995, and for the nine-month period ended September 30, 1996, and the balance
sheet of Amscan Holdings, Inc. as of December 13, 1996, have been included
herein and in the registration statement in reliance upon the reports of KPMG
Peat Marwick LLP, independent certified public accountants, appearing elsewhere
herein and in the registration statement, and upon the authority of said firm as
experts in accounting and auditing.
OTHER INFORMATION
The Company has filed with the Securities and Exchange Commission in
Washington, D.C. a Registration Statement under the Securities Act with respect
to the Common Stock offered by this Prospectus. This Prospectus does not contain
all the information set forth in the Registration Statement and the exhibits and
schedules thereto. For further information with respect to the Company and the
Common Stock, reference is made to the Registration Statement and to the
exhibits and schedules filed therewith. The Registration Statement and the
exhibits and schedules forming a part thereof may be inspected without charge at
the public reference facilities maintained by the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549 and at the Commission's Regional Offices in
New York (7 World Trade Center, 13th Floor, New York, New York 10048) and
Chicago (Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661) and copies of such materials can be obtained from the
Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. In addition, the Commission
maintains a Web site that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission at the following address: http://www.sec.gov.
Statements made in this Prospectus as to the contents of any contract,
agreement or other document referred to are not necessarily complete. With
respect to each such contract, agreement or other document filed as an exhibit
to the Registration Statement, reference is made to the exhibit for a more
complete description of the matter involved, and each such statement shall be
deemed qualified in its entirety by such reference.
58
<PAGE> 62
AMSCAN INC. AND AFFILIATES
INDEX TO COMBINED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Combined Financial Statements as of December 31, 1994 and 1995 and for each of the
years in the three-year period ended December 31, 1995:
Independent Auditors' Report....................................................... F-2
Combined Balance Sheets............................................................ F-3
Combined Statements of Operations.................................................. F-4
Combined Statements of Stockholders' Equity........................................ F-5
Combined Statements of Cash Flows.................................................. F-6
Notes to Combined Financial Statements............................................. F-7
Combined Financial Statements as of September 30, 1996 and for the nine month periods
ended September 30, 1995 (unaudited) and 1996:
Independent Auditors' Report....................................................... F-20
Combined Balance Sheet............................................................. F-21
Combined Statements of Operations.................................................. F-22
Combined Statements of Stockholders' Equity........................................ F-23
Combined Statements of Cash Flows.................................................. F-24
Notes to Combined Financial Statements............................................. F-25
AMSCAN HOLDINGS, INC.
INDEX TO FINANCIAL STATEMENT
Independent Auditors' Report......................................................... F-35
Balance Sheet at December 13, 1996................................................... F-36
</TABLE>
F-1
<PAGE> 63
INDEPENDENT AUDITORS' REPORT
To the Stockholders of Amscan Inc.
and Affiliates:
We have audited the accompanying special purpose combined balance sheets of
Amscan Inc. and Affiliates as of December 31, 1994 and 1995 and the related
special purpose combined statements of operations, stockholders' equity and cash
flows for each of the years in the three-year period ended December 31, 1995.
These special purpose combined financial statements are the responsibility of
the Companies' management. Our responsibility is to express an opinion on these
special purpose combined financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
The accompanying special purpose combined financial statements include the
accounts of Amscan Inc. and Affiliates, as defined in note (1). These financial
statements present the combined accounts of entities owned by the Principal
Stockholder engaged in the design, manufacture, contract for manufacture or
distribution of party and novelty goods.
In our opinion, the special purpose combined financial statements referred
to above present fairly, in all material respects, the combined financial
position of Amscan Inc. and Affiliates as of December 31, 1994 and 1995, and the
combined results of their operations and their cash flows for each of the years
in the three-year period ended December 31, 1995, in conformity with generally
accepted accounting principles.
KPMG Peat Marwick LLP
Stamford, Connecticut
April 5, 1996, except as to note (16),
which is as of July 31, 1996, and note (7)
which is as of September 30, 1996
F-2
<PAGE> 64
AMSCAN INC. AND AFFILIATES
COMBINED BALANCE SHEETS
($ IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1994 1995
------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................. $ 2,229 $ 2,492
Accounts receivable, net of allowances of $1,925 and $2,505, 23,847
respectively....................................................... 31,880
Inventories........................................................... 34,465 45,013
Deposits and other.................................................... 2,457 2,920
------- --------
Total current assets............................................... 62,998 82,305
Property, plant and equipment, net...................................... 26,925 26,848
Other assets............................................................ 3,961 5,448
------- --------
Total assets....................................................... $93,884 $114,601
======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Loans and notes payable............................................... $28,665 $ 37,849
Subordinated debt to Principal Stockholder............................ 12,000 16,000
Accounts payable...................................................... 4,849 5,855
Accrued expenses...................................................... 7,718 9,526
Loans and notes payable to Principal Stockholder...................... 5,295 2,453
Current installments of long-term indebtedness........................ 4,909 2,239
------- --------
Total current liabilities.......................................... 63,436 73,922
Long-term indebtedness, excluding current installments.................. 8,800 12,284
Other................................................................... 828 1,190
------- --------
Total liabilities.................................................. 73,064 87,396
------- --------
Stockholders' equity:
Common stock.......................................................... 393 393
Additional paid-in capital............................................ 9,090 9,090
Retained earnings..................................................... 12,037 18,462
Cumulative translation adjustment..................................... (613) (653)
Treasury stock, at cost............................................... (87) (87)
------- --------
Total stockholders' equity......................................... 20,820 27,205
------- --------
Total liabilities and stockholders' equity......................... $93,884 $114,601
======= ========
</TABLE>
See accompanying notes to combined financial statements.
F-3
<PAGE> 65
AMSCAN INC. AND AFFILIATES
COMBINED STATEMENTS OF OPERATIONS
($ IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------
1993 1994 1995
-------- -------- -----------
<S> <C> <C> <C>
Net sales................................................ $108,934 $132,029 $ 167,403
Cost of sales............................................ 72,656 86,748 108,654
-------- -------- ------------
Gross profit........................................ 36,278 45,281 58,749
-------- -------- ------------
Operating expenses:
Selling................................................ 9,780 11,309 12,241
General and administrative............................. 11,080 14,460 15,002
Art and development.................................... 2,596 2,796 4,256
Special bonuses........................................ 1,106 2,200 2,581
-------- -------- ------------
Total operating expenses............................ 24,562 30,765 34,080
-------- -------- ------------
Income from operations.............................. 11,716 14,516 24,669
Interest expense, net.................................... 2,304 3,843 5,772
Other expense (income), net.............................. 308 82 (309)
-------- -------- ------------
Income before income taxes and minority interests........ 9,104 10,591 19,206
Income taxes............................................. 348 464 731
Minority interests....................................... 301 160 1,041
-------- -------- ------------
Net income.......................................... $ 8,455 $ 9,967 $ 17,434
======== ======== ============
Pro forma data (unaudited) (note (15)):
Net income before pro forma taxes................... $ 8,455 $ 9,967 $ 17,434
Pro forma additional income tax expense............. 3,218 3,774 6,672
-------- -------- ------------
Pro forma net income.............................. $ 5,237 $ 6,193 $ 10,762
======== ======== ============
Supplemental pro forma data (unaudited) (note (15)):
Supplemental pro forma net income................... $ 14,197
============
Supplemental pro forma net income per share......... $ 0.65
============
Supplemental pro forma weighted average shares
outstanding....................................... 22,000,000
============
</TABLE>
See accompanying notes to combined financial statements.
F-4
<PAGE> 66
AMSCAN INC. AND AFFILIATES
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
($ IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL CUMULATIVE
COMMON PAID-IN RETAINED TRANSLATION TREASURY
STOCK CAPITAL EARNINGS ADJUSTMENT STOCK TOTAL
------ ---------- --------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1992....... $192 $5,758 $ 9,584 $ 103 $(87) $ 15,550
Capital related to
acquisitions................... 201 1,482 -- -- -- 1,683
Net income....................... -- -- 8,455 -- -- 8,455
Subchapter S and other
distributions.................. -- -- (8,519) -- -- (8,519)
Capital contributions............ -- 1,850 -- -- -- 1,850
Net change in cumulative
translation adjustment......... -- -- -- (523) -- (523)
---- ------ ------- ------ ----- ---------
Balance, December 31, 1993....... 393 9,090 9,520 (420) (87) 18,496
Net income....................... -- -- 9,967 -- -- 9,967
Subchapter S and other
distributions.................. -- -- (7,450) -- -- (7,450)
Net change in cumulative
translation adjustment......... -- -- -- (193) -- (193)
---- ------ ------- ------ ----- ---------
Balance, December 31, 1994....... 393 9,090 12,037 (613) (87) 20,820
Net income....................... -- -- 17,434 -- -- 17,434
Subchapter S and other
distributions.................. -- -- (11,009) -- -- (11,009)
Net change in cumulative
translation adjustment......... -- -- -- (40) -- (40)
---- ------ ------- ------ ----- ---------
Balance, December 31, 1995....... $393 $9,090 $ 18,462 $ (653) $(87) $ 27,205
==== ====== ======= ====== ===== =========
</TABLE>
See accompanying notes to combined financial statements.
F-5
<PAGE> 67
AMSCAN INC. AND AFFILIATES
COMBINED STATEMENTS OF CASH FLOWS
($ IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER
31,
-------------------------------
1993 1994 1995
-------- ------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income................................................. $ 8,455 $ 9,967 $ 17,434
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization........................... 2,628 3,672 4,332
Loss (gain) on disposal of property and equipment....... 405 35 (5)
Provision for doubtful accounts......................... 2,339 2,676 1,581
Changes in operating assets and liabilities, net of
acquisitions:
Accounts receivable................................... (7,439) (5,041) (9,614)
Inventories........................................... (3,450) (5,682) (10,548)
Deposits and other.................................... 1,530 (444) (463)
Other assets.......................................... (1,413) (2,497) (3,032)
Accounts payable and accrued expenses................. 5,294 912 2,814
Other................................................. 351 289 362
--------- -------- ---------
Net cash provided by operating activities.......... 8,700 3,887 2,861
--------- -------- ---------
Cash flows from investing activities:
Cash paid for acquisitions................................. (2,139) -- --
Capital expenditures....................................... (3,511) (6,160) (2,662)
Proceeds from disposal of property and equipment........... 14 98 9
--------- -------- ---------
Net cash used in investing activities.............. (5,636) (6,062) (2,653)
--------- -------- ---------
Cash flows from financing activities:
Proceeds from loans, notes payable and long-term
indebtedness............................................ 39,942 6,324 42,311
Repayment of loans, notes payable and long-term
indebtedness............................................ (38,291) (2,434) (32,313)
Proceeds from loans, notes payable and subordinated
indebtedness to Principal Stockholder................... 4,979 6,316 4,000
Repayment of loans, notes payable and subordinated
indebtedness to Principal Stockholder................... -- -- (2,842)
Subchapter S and other distributions....................... (8,519) (7,450) (11,009)
--------- -------- ---------
Net cash (used in) provided by financing activities..... (1,889) 2,756 147
--------- -------- ---------
Effect of exchange rate changes on cash.................... (279) 270 (92)
--------- -------- ---------
Net increase in cash and cash equivalents............... 896 851 263
Cash and cash equivalents at beginning of year............... 482 1,378 2,229
--------- -------- ---------
Cash and cash equivalents at end of year..................... $ 1,378 $ 2,229 $ 2,492
========= ======== =========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest................................................ $ 3,168 $ 4,025 $ 4,486
Taxes................................................... $ 152 $ 112 $ 601
Supplemental information on noncash investing activities:
</TABLE>
Capital lease obligations of $648 were incurred in 1994. There were no capital
lease obligations incurred in 1993 or 1995.
See accompanying notes to combined financial statements.
F-6
<PAGE> 68
AMSCAN INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1995
(1) DESCRIPTION OF BUSINESS
The accompanying special purpose combined financial statements include the
accounts of Amscan Inc. and certain of its affiliates (the "Companies"). The
Companies design, manufacture, contract for manufacture and distribute party and
novelty goods to retailers and wholesale distributors principally in the United
States, Canada and Europe.
BASIS OF COMBINATION
These combined financial statements present the Companies on a combined
basis because of their common ownership by Mr. John A. Svenningsen (the
"Principal Stockholder"). The name, the Principal Stockholder's ownership and a
brief description of each of the combined entity's principal business activity
is presented below.
<TABLE>
<CAPTION>
PRINCIPAL
STOCKHOLDER'S
ENTITY OWNERSHIP PRINCIPAL ACTIVITY
----------------------------------- ------------- -----------------------------------
<S> <C> <C>
Amscan Inc......................... 100% Manufacturer -- paper tableware;
and distributor -- worldwide
Am-Source, Inc..................... 50% Manufacturer -- plastic products
Trisar, Inc........................ 100% Manufacturer -- gift products
Amscan Distributors (Canada) Ltd... 100% Distributor -- Canada
Amscan Holdings Limited............ 75% Distributor -- United Kingdom
Amscan (Asia Pacific) Pty. Ltd..... 85% Distributor -- Australia and Asia
Amscan Partyartikel GmbH........... 95% Distributor -- Germany
Amscan Svenska AB.................. 100% Distributor -- Sweden
Amscan de Mexico, S.A. de C.V...... 48% Distributor -- Mexico
JCS Realty Corp.................... 100% Real estate -- Canada
SSY Realty Corp.................... 100% Real estate -- United States
</TABLE>
The less than majority-owned entities are combined in the accompanying
financial statements. The inclusion of the less than majority-owned entities
both individually and collectively is not material to the accompanying combined
financial statements taken as a whole. All material intercompany balances and
transactions have been eliminated in combination.
ACQUISITIONS AND DISPOSITIONS
On May 24, 1993, the Principal Stockholder acquired 50% of the stock of
Am-Source, Inc. Simultaneously, Am-Source, Inc. acquired for $456,000 all of the
assets and assumed certain liabilities of Multi-Source, Inc. Both transactions
were accounted for as a purchase and the fair value of the assets acquired
approximated the fair value of the liabilities assumed.
On November 13, 1993, the Principal Stockholder acquired 100% of the stock
of Trisar, Inc. for approximately $1,500,000 in cash and notes. The acquisition
has been accounted for as a purchase and the excess purchase price over the fair
value of the net assets acquired of $1,057,000 is being amortized on a
straight-line basis over three years.
On September 3, 1993, the Principal Stockholder acquired 48% of the stock
of Amscan de Mexico, S.A. de C.V. for $201,000 in cash, which approximated 48%
of the fair value of its net assets.
F-7
<PAGE> 69
AMSCAN INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995
The results of operations for each of the above entities are included in
the accompanying combined financial statements from their respective dates of
acquisition. The individual and collective results of operations of the entities
for the year ended December 31, 1993 had each of the acquisitions occurred at
the beginning of 1993, are not significant.
During the periods presented, a business, which was not material to the
combined business of the Companies, was acquired by the Principal Stockholder
and subsequently disposed of. The associated balance sheet, statements of
operation and loss on disposition of the business are insignificant and have
been excluded from the accompanying combined financial statements.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH EQUIVALENTS
Highly liquid investments with a maturity of three months or less when
purchased are considered to be cash equivalents.
INVENTORIES
Substantially all inventories of the Companies are valued at the lower of
cost or market (principally on the first-in, first-out method).
PROPERTY, PLANT, AND EQUIPMENT
Property, plant and equipment are stated at cost. Machinery and equipment
under capital leases are stated at the present value of the minimum lease
payments at the inception of the lease.
Depreciation is calculated principally on the straight-line method over the
estimated useful lives of the assets. Machinery and equipment held under capital
leases and leasehold improvements are amortized straight-line over the shorter
of the lease term or estimated useful life of the asset.
OTHER ASSETS
Included in other assets are capitalized costs which represent third party
costs incurred to manufacture and commercialize designs for production,
including the acquisition of printing plates. Accordingly these costs are
amortized on a straight line basis over their estimated useful lives of three
years. The amortization of such costs is included in cost of sales and was
$862,000, $953,000 and $1,195,000, respectively, for the three years ended
December 31, 1993, 1994 and 1995.
REVENUE RECOGNITION
The Companies recognize revenue from product sales when the goods are
shipped to the customers. Product returns and warranty costs are immaterial.
CATALOGUE COSTS
The Companies expense costs associated with the production of annual
catalogues when incurred.
F-8
<PAGE> 70
AMSCAN INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995
ART AND DEVELOPMENT COSTS
Art and development costs are primarily internal costs that are not easily
associated with specific designs which may reach commercial production.
Accordingly, the Companies expense these costs as incurred.
INCOME TAXES
Certain of the affiliates have elected Subchapter S corporation status for
U.S. federal and state income tax purposes. Income taxes, therefore, are
principally the responsibility of the stockholders. Income taxes for all other
entities, including foreign distributors, are computed in accordance with the
tax laws in the jurisdictions in which the entities operate.
FOREIGN CURRENCY TRANSACTIONS AND TRANSLATION
Realized foreign currency exchange gains or losses, which result from the
settlement of receivables or payables in currencies other than U.S. dollars, are
credited or charged to operations. Unrealized gains or losses on foreign
currency exchanges are insignificant.
The balance sheets of foreign affiliates are translated into U.S. dollars
at the exchange rates in effect on the balance sheet date. The results of
operations of foreign affiliates are translated into U.S. dollars at the average
exchange rates effective for the periods presented. The differences from
historical exchange rates are reflected as a separate component of stockholders'
equity.
CONCENTRATION OF CREDIT RISK
While the Companies' customers are geographically disbursed throughout
North America, South America, Europe, Asia and Australia, there is a
concentration of sales made to and accounts receivable from the stores which
operate in the party superstore channel of distribution. At December 31, 1994
and 1995, the Companies' two largest customers, with approximately 185 stores,
accounted for 8% and 12%, respectively, of combined accounts receivable. For the
years ended December 31, 1993, 1994 and 1995, sales to the Companies' two
largest customers represented 7%, 10%, and 17%, respectively, of combined net
sales. Of such amount, sales to the Companies' largest customer represented 5%,
8% and 11%, respectively. No other group or combination of customers subjected
the Companies to a concentration of credit risk.
USE OF ESTIMATES
Management has made estimates and assumptions relating to the reporting of
assets and liabilities to prepare these financial statements in conformity with
generally accepted accounting principles. Actual results could differ from those
estimates.
RECENTLY ISSUED ACCOUNTING STANDARDS
In October 1995, the Financial Accounting Standards Board (FASB) issued
Statement on Financial Accounting Standards (SFAS) No. 123 -- Accounting for
Stock-Based Compensation. As allowable by SFAS 123, the Companies do not intend
to recognize compensation cost for stock-based employee compensation
arrangements, but rather, starting with fiscal 1996, will disclose the pro-forma
impact on net income and earnings per share as if the fair value stock-based
compensation had been recognized starting with fiscal 1995.
F-9
<PAGE> 71
AMSCAN INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995
In March 1995, the FASB issued SFAS 121 -- Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. When adopted in
1996, the Companies do not believe that the impact of SFAS 121 will have a
significant impact on their financial position or results of operations.
Other pronouncements issued by the FASB or other authoritative accounting
standard groups with future effective dates are either not applicable or not
significant to the financial statements of the Companies.
(3) INVENTORIES
Inventories at December 31, 1994 and 1995 consisted of the following ($ in
thousands):
<TABLE>
<CAPTION>
1994 1995
------- -------
<S> <C> <C>
Finished goods................................................. $31,984 $42,125
Raw materials.................................................. 2,957 2,277
Work-in-process................................................ 358 1,839
------- -------
35,299 46,241
Less: Reserve for slow moving and obsolete inventory........... (834) (1,228)
------- -------
$34,465 $45,013
======= =======
</TABLE>
(4) PROPERTY, PLANT AND EQUIPMENT
Major classifications of property, plant and equipment at December 31, 1994
and 1995 consisted of the following ($ in thousands):
<TABLE>
<CAPTION>
ESTIMATED
1994 1995 USEFUL LIVES
-------- -------- ------------
<S> <C> <C> <C>
Machinery and equipment........................ $ 15,849 $ 18,879 5-15
Data processing equipment...................... 5,536 6,123 5
Leasehold improvements......................... 4,581 4,784 25
Furniture and fixtures......................... 3,929 2,370 10
Buildings...................................... 9,162 9,524 31-40
Land........................................... 1,881 1,917 --
--------- ---------
40,938 43,597
Less: accumulated depreciation and
amortization................................. (14,013) (16,749)
--------- ---------
$ 26,925 $ 26,848
========= =========
</TABLE>
Depreciation and amortization expense was $1,766,000, $2,367,000 and
$2,785,000 for the years ended December 31, 1993, 1994 and 1995, respectively.
(5) LOANS AND NOTES PAYABLE
During 1995, certain of the Companies entered into a revolving credit
agreement with several banks which expires on September 20, 2000. Amounts
available for borrowing under this agreement, subject to asset availability and
other restrictions, are as follows:
<TABLE>
<S> <C>
September 20, 1995 -- September 19, 1996.............................. $50,000,000
September 20, 1996 -- September 19, 1997.............................. $55,000,000
September 20, 1997 -- September 20, 2000.............................. $60,000,000
</TABLE>
F-10
<PAGE> 72
AMSCAN INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995
Such revolving credit agreement is collateralized by a first lien on
certain of the assets of the Companies. The revolving credit agreement provides
for interest on the borrowings to be based on either a prime borrowing rate or
LIBOR plus 0.875%, whichever is lower. Additionally, the revolving credit
agreement requires the Companies to comply with certain covenants including the
maintenance of financial ratios, as defined. At December 31, 1995, the Companies
were in compliance with all such covenants.
Loans and notes payable outstanding at December 31, 1994 and 1995 consisted
of the following ($ in thousands):
<TABLE>
<CAPTION>
1994 1995
------- -------
<S> <C> <C>
Revolving credit line with interest at LIBOR plus 0.875% (6.41%
at December 31, 1995).......................................... $ -- $35,000
Revolving credit line with interest at the prime rate (8.5% at
December 31, 1995) and the prime rate plus 0.25% (8.75% at
December 31, 1994)............................................. 16,165 2,060
Bankers acceptances payable at various dates through June 26,
1995 with interest at rates ranging from 6.43% to 8.10%........ 12,500 --
Revolving credit line denominated in British Pounds Sterling with
interest at the U.K. Base rate plus 2% (8.5% at December 31,
1995).......................................................... -- 789
------- -------
$28,665 $37,849
======= =======
</TABLE>
The weighted average interest rates on loans and notes payable outstanding
at December 31, 1994 and 1995 were 8.08% and 6.57%, respectively.
The Companies are currently involved in three interest rate swap
transactions covering $25,000,000 of its outstanding obligation under the
revolving credit agreement. The transactions fix the interest rates as indicated
below and entitle the Companies to settle with the counterparty on a quarterly
basis, the product of the notional amount times the amount, if any, by which the
ninety day LIBOR exceeds the fixed rate. Net payments to the counterparty under
the swap agreements for the years ended December 31, 1994 and 1995, which have
been recorded as additional interest expense, have been computed as follows ($
in thousands):
<TABLE>
<CAPTION>
ADDITIONAL
INTEREST
EXPENSE
NOTIONAL -------------
DATE OF CONTRACT AMOUNT TERM FIXED RATE 1994 1995
---------------------------------- ------- -------- ---------- ---- ----
<S> <C> <C> <C> <C> <C>
September 28, 1994................ $ 5,000 10 years 7.945% $34 $ 94
May 12, 1995...................... $10,000 5 years 6.590% -- 42
July 20, 1995..................... $10,000 10 years 6.750% -- 38
--- ----
$34 $174
=== ====
</TABLE>
F-11
<PAGE> 73
AMSCAN INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995
(6) LONG-TERM INDEBTEDNESS
Long-term indebtedness at December 31, 1994 and 1995 consisted of the
following ($ in thousands):
<TABLE>
<CAPTION>
1994 1995
------- -------
<S> <C> <C>
Mortgage obligations (a)....................................... $ 7,815 $ 6,956
Term loans (b)................................................. 3,189 5,152
Capital lease obligations (c).................................. 2,705 2,415
------- -------
Total long-term indebtedness......................... 13,709 14,523
Less: current installments..................................... (4,909) (2,239)
------- -------
Long-term indebtedness, excluding current installments......... $ 8,800 $12,284
======= =======
</TABLE>
- ---------------
(a) Certain of the Companies have mortgage obligations payable to financial
institutions relating to distribution facilities due through September 13,
2004. The mortgages are collateralized by specific real estate assets of the
Companies and carry interest rates ranging from the Canadian prime rate plus
0.5% (8.5% and 8.0% as of December 31, 1994 and 1995, respectively) to
8.51%. At December 31, 1994 and 1995, $2,000,000 and $1,800,000 of mortgage
obligations, respectively, are denominated in Canadian dollars.
(b) Certain of the Companies have various term loans payable to financial
institutions due through April 1, 2002. The loans are collateralized by
specific assets of the Companies and carry interest rates which range from
8.01% to 9.5%.
(c) Certain of the Companies have entered into various capital leases for
machinery and equipment with implicit interest rates ranging from 6.5% to
23.0% and which extend to 2001.
At December 31, 1995, principal maturities of long-term indebtedness
consisted of the following ($ in thousands):
<TABLE>
<CAPTION>
CAPITAL
INDEBTEDNESS LEASE OBLIGATIONS TOTAL
------------ ----------------- -------
<S> <C> <C> <C>
1996...................................... $ 1,951 $ 472 $ 2,423
1997...................................... 1,583 466 2,049
1998...................................... 1,290 464 1,754
1999...................................... 1,264 448 1,712
2000...................................... 1,194 442 1,636
Thereafter................................ 4,826 806 5,632
------- ------ -------
12,108 3,098 15,206
Amount representing interest.............. -- (683) (683)
------- ------ -------
Long-term indebtedness.................... $ 12,108 $ 2,415 $14,523
======= ====== =======
</TABLE>
(7) DUE TO PRINCIPAL STOCKHOLDER
Certain of the Companies owed $12,000,000 and $16,000,000 to the Principal
Stockholder as of December 31, 1994 and 1995, respectively, under a subordinated
note with interest payable monthly. This note is subject to a subordination
agreement among the Principal Stockholder, Amscan Inc., and the lenders involved
with the revolving credit agreement as discussed in note (5). Under the terms of
the subordination agreement, the payment of any principal evidenced by the
F-12
<PAGE> 74
AMSCAN INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995
subordinated note is generally prohibited. Interest is at the prime rate plus
0.5% (9.0% at both December 31, 1994 and 1995).
Further, certain of the Companies had unsecured current loans payable to
the Principal Stockholder aggregating $5,295,000 and $2,453,000, respectively,
at December 31, 1994 and 1995, at interest rates ranging from 7% to 12%. The
loans have different forms of collateral but are generally subordinated to the
credit facility discussed in note (5) and are due at various dates through 2003.
During 1993, $1,200,000 of notes payable to the Principal Stockholder were
converted to subordinated indebtedness and additional paid-in capital in the
amounts of $1,000,000 and $200,000, respectively. In addition, $3,000,000 of
accrued expenses due to the Principal Stockholder were converted to subordinated
indebtedness and additional paid-in capital in the amount of $1,350,000 and
$1,650,000, respectively.
During 1994 and 1995, $3,650,000 and $4,000,000 of notes payable to the
Principal Stockholder were converted to subordinated indebtedness, respectively.
In September 1996, certain of the Companies declared the distribution of
$7,600,000 of previously provided capital and $13,067,000 of undistributed
earnings. It is contemplated that such payment will be made in connection with
the Offering (see note (15)).
(8) EMPLOYEE BENEFIT PLANS
Certain of the Companies maintain a profit-sharing plan for all eligible
employees providing for annual discretionary contributions to a trust. As of
January 1, 1995, the plan required the Companies to match 25% of the first 6% of
an employee's contribution to the plan. Benefit expense for the years ended
December 31, 1993, 1994 and 1995 totaled $590,000, $548,000 and $558,000,
respectively.
(9) SPECIAL BONUS ARRANGEMENTS
During the periods presented, Amscan Inc. had employment agreements with
certain key executives and senior managers which provided for these individuals
to receive annual bonuses based upon the pre-tax income of Amscan Inc. and
certain of its affiliates. These bonuses which amounted to approximately 18% to
20% of pre-tax income are reflected in the Combined Statements of Operations in
the caption "Special Bonuses." At December 31, 1994 and 1995, respectively,
$1,805,000 and $2,581,000 were accrued for such bonuses and included in accrued
expenses.
(10) INCOME TAXES
The entities Amscan Inc., Am-Source, Inc., JCS Realty Corp. and SSY Realty
Corp. have elected Subchapter S corporation status. Accordingly, these entities
are generally not subject to federal and state income taxes, to the extent that
states recognize Subchapter S corporation status.
Current income tax expense and deferred taxes generally arise from taxes on
income generated by foreign affiliates at the effective rate in effect in each
of the taxing jurisdictions. Deferred taxes arising from timing differences are
not significant.
A summary of the domestic and foreign pre-tax income (loss) for the years
ended December 31, 1993, 1994 and 1995 are as follows:
<TABLE>
<CAPTION>
1993 1994 1995
---------- ----------- -----------
<S> <C> <C> <C>
Domestic................................. $9,368,000 $10,009,000 $17,750,000
Foreign.................................. $ (264,000) $ 582,000 $ 1,456,000
</TABLE>
F-13
<PAGE> 75
AMSCAN INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995
A summary of the operations subject to tax, their reported tax expense and
effective tax rates for the years ended December 31, 1993, 1994 and 1995 are as
follows ($ in thousands):
<TABLE>
<CAPTION>
1993 1994 1995
------------------- ------------------- -------------------
TAX EFFECTIVE TAX EFFECTIVE TAX EFFECTIVE
EXPENSE RATE EXPENSE RATE EXPENSE RATE
------- --------- ------- --------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Amscan Distributors (Canada) Ltd...... $ 150 38% $ 190 39% $ 283 39%
Amscan Holdings Limited............... 96 53% 118 34% 263 39%
Amscan (Asia Pacific) Pty. Ltd........ 67 34% 83 32% 103 32%
Other................................. 35 4% 73 6% 82 8%
---- ---- ----
$ 348 $ 464 $ 731
==== ==== ====
</TABLE>
(11) COMMON STOCK
Common Stock for each of the combined entities is as follows:
Amscan Inc.:
No par value; 1,000 shares authorized, 990 shares issued and
outstanding (including 330 shares of treasury stock).
Am-Source, Inc.:
No par value; 1,000 shares authorized, 120 shares issued and
outstanding.
Trisar, Inc.:
No par value; 10,000 shares authorized, 266.66 shares issued
and outstanding.
Amscan Distributors (Canada) Ltd.:
$1 (Canadian) par value; 10,000 shares authorized, 3,000
shares issued and outstanding.
Amscan Holdings Limited:
Ordinary Shares:
20p par value; 1,250,000 shares authorized, 287,500 issued
and outstanding.
Preference Shares:
One British Pound Sterling par value; 5,000 shares
authorized, issued and outstanding.
Amscan (Asia Pacific) Pty. Ltd.:
Aus. $1 par value; 10,000 shares authorized, 886 shares issued
and outstanding.
Amscan Partyartikel GmbH:
No par value; 50,000 shares authorized, issued and
outstanding.
Amscan Svenska AB:
No par value; 1,500 shares authorized, issued and outstanding.
Amscan de Mexico, S.A. de C.V.:
Class A Shares:
No stated value, fixed capital; 31 shares authorized,
issued and outstanding.
Class A-1 shares:
No stated value, variable capital; 620 shares authorized,
issued and outstanding.
F-14
<PAGE> 76
AMSCAN INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995
Class B Shares:
No stated value, fixed capital; 29 shares authorized,
issued and outstanding.
Class B-1 Shares:
No stated value, variable capital; 580 shares authorized,
issued and outstanding.
JCS Realty Corp.:
No par value; 200 shares authorized, one share issued and
outstanding.
SSY Realty Corp.:
No par value; 200 shares authorized issued and outstanding.
(12) COMMITMENTS AND CONTINGENCIES
LEASES
The Companies are obligated under various capital leases for certain
machinery and equipment which expire on various dates through June 1, 2001 (see
also note (6)). At December 31, 1994 and 1995, the amount of machinery and
equipment and related accumulated amortization recorded under capital leases is
included with property, plant and equipment and consisted of the following ($ in
thousands):
<TABLE>
<CAPTION>
1994 1995
------ ------
<S> <C> <C>
Machinery and equipment.......................................... $3,122 $3,174
Less: accumulated amortization................................... (244) (564)
------
$2,878 $2,610
======
</TABLE>
Amortization of assets held under capitalized leases is included with
depreciation expense.
The Companies have several noncancelable operating leases with unaffiliated
third parties, primarily for office and manufacturing space, showrooms, and
warehouse equipment that expire over the next eight years. These leases
generally contain renewal options and require the Companies to pay real estate
taxes, utilities and related insurance.
At December 31, 1995, certain of the Companies also had noncancelable
operating leases with the Principal Stockholder and real estate entities owned
either directly or indirectly by the Principal Stockholder ("Uncombined
Affiliates") for warehouse and office space that expire over the next sixteen
years. Rent due to Uncombined Affiliates represents future commitments
associated with property leased by the Companies from the Principal Stockholder
or such entities owned directly or indirectly by the Principal Stockholder.
Subsequent to December 31, 1995, the terms of the leases have been amended (see
note (16)).
F-15
<PAGE> 77
AMSCAN INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995
At December 31, 1995 future minimum lease payments under all operating
leases consisted of the following ($ in thousands):
<TABLE>
<CAPTION>
UNCOMBINED
THIRD PARTIES AFFILIATES TOTAL
------------- ---------- -------
<S> <C> <C> <C>
1996........................................... $ 3,132 $ 2,132 $ 5,264
1997........................................... 2,538 2,246 4,784
1998........................................... 1,989 2,309 4,298
1999........................................... 1,274 2,374 3,648
2000........................................... 1,043 2,442 3,485
Thereafter..................................... 3,209 29,862 33,071
------- ------- -------
$13,185 $ 41,365 $54,550
======= ======= =======
</TABLE>
Rent expense for the years ended December 31, 1993, 1994 and 1995 was
$3,414,000, $4,300,000 and $4,705,000, respectively, of which $2,242,000,
$2,468,000 and $2,526,000, respectively, related to leases with Uncombined
Affiliates.
(13) SEGMENT INFORMATION
INDUSTRY SEGMENTS
The Companies operate in primarily one industry segment which involves the
design, manufacture, contract for manufacture and distribution of party and
novelty goods to retailers and wholesale distributors.
GEOGRAPHIC SEGMENTS
The Companies' export sales, other than those intercompany sales reported
below as sales between geographic areas, are not material. Sales between
geographic areas primarily consist of sales of finished goods for distribution
in the foreign markets.
The Companies' geographic area data for each of the three fiscal years
ended December 31, 1993, 1994 and 1995 are as follows ($ in thousands):
<TABLE>
<CAPTION>
DOMESTIC FOREIGN ELIMINATIONS COMBINED
-------- ------- ------------ --------
<S> <C> <C> <C> <C>
1993
Sales to unaffiliated customers............. $ 95,021 $13,913 $108,934
Sales between geographic areas.............. 4,753 19 $ (4,772) --
-------- ------- ------- --------
Net sales................................... $ 99,774 $13,932 $ (4,772) $108,934
======== ======= ======= ========
Income from operations...................... $ 11,562 $ 154 $ 11,716
======== =======
Interest expense, net....................... 2,304
Other expense, net.......................... 308
--------
Income before income taxes and minority
interests................................. $ 9,104
========
Identifiable assets......................... $ 68,390 $11,700 $ 80,090
======== ======= ========
</TABLE>
F-16
<PAGE> 78
AMSCAN INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995
<TABLE>
<CAPTION>
DOMESTIC FOREIGN ELIMINATIONS COMBINED
-------- ------- ------------ --------
<S> <C> <C> <C> <C>
1994
Sales to unaffiliated customers............. $115,196 $16,833 $132,029
Sales between geographic areas.............. 5,645 89 $ (5,734) --
-------- ------- ------------ --------
Net sales................................... $120,841 $16,922 $ (5,734) $132,029
========= ======== ========== =========
Income from operations...................... $ 13,468 $ 1,048 14,516
========= ========
Interest expense, net....................... 3,843
Other expense, net.......................... 82
--------
Income before income taxes and minority
interests................................. $ 10,591
=========
Identifiable assets......................... $ 80,117 $13,767 $ 93,884
========= ======== =========
</TABLE>
<TABLE>
<CAPTION>
DOMESTIC FOREIGN ELIMINATIONS COMBINED
-------- ------- ------------ --------
<S> <C> <C> <C> <C>
1995
Sales to unaffiliated customers............. $146,198 $21,205 $167,403
Sales between geographic areas.............. 8,508 60 $ (8,568) --
-------- ------- ------------ --------
Net sales................................... $154,706 $21,265 $ (8,568) $167,403
========= ======== ========== =========
Income from operations...................... $ 22,782 $ 1,887 $ 24,669
========= ========
Interest expense, net....................... 5,772
Other income, net........................... (309)
--------
Income before income taxes and minority
interests................................. $ 19,206
=========
Identifiable assets......................... $ 99,123 $15,478 $114,601
========= ======== =========
</TABLE>
(14) FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts for cash and cash equivalents, accounts receivables,
deposits and other current assets, loans and notes payable, accounts payable,
accrued expenses (non derivatives) and other current liabilities approximates
fair value at December 31, 1995 because of the short term maturity of those
instruments or their variable rate of interest.
The carrying amounts for long term debt approximates fair value at December
31, 1995. Fair value has been estimated by discounting the future cash flow of
each instrument at rates currently offered for similar debt instruments of
comparable maturity.
Fair value amounts for loans and notes payable to Principal Stockholder are
not presented due to the related party nature of the indebtedness and the
ability of the Principal Stockholder to amend the features of the debt
instruments.
The fair value of interest rate swaps is the estimated amount that the Bank
would receive or pay to terminate the swap agreements at the reporting date,
taking into account current interest rates and the current creditworthiness of
the swap counterparties. Termination of the swap agreements at December 31, 1995
would require certain of the Companies to pay the Bank $1,857,000.
F-17
<PAGE> 79
AMSCAN INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995
(15) PRO FORMA DATA AND SUPPLEMENTAL PRO FORMA DATA (UNAUDITED)
In connection with a proposed initial public offering of its common stock
(the "Offering") Amscan Holdings, Inc. was formed on October 3, 1996 for the
purpose of becoming the holding company for the business conducted by the
Companies. Such transfer of ownership will be accounted for in a manner similar
to a pooling of interests and will result in Amscan Inc., Am-Source, Inc., JCS
Realty Corp. and SSY Realty Corp. being taxed as Subchapter C corporations under
federal and certain state income tax requirements.
Pro forma net income for the years ended December 31, 1993, 1994 and 1995
give effect to pro forma income tax provisions at statutory rates (40.5%)
assuming Amscan Inc., Am-Source, Inc., JCS Realty Corp. and SSY Realty Corp. had
not elected Subchapter S corporation status for those periods.
In addition to the pro forma additional income tax expense, there are other
events contemplated in connection with the Offering that have been reflected in
the supplemental pro forma net income for the year ended December 31, 1995 which
causes such amount to be higher than the pro forma net income amount.
The supplemental pro forma net income for the year ended December 31, 1995
gives effect to (i) reduction in compensation paid to certain employees to the
extent such compensation exceeded the compensation payable to such individuals
under certain prospective compensation agreements ($2,581,000), (ii) to reflect
amortization of goodwill ($250,000) and elimination of minority interest related
to the 50% acquisition of Am-Source, Inc. as if it were acquired at the
beginning of the period presented ($927,000), (iii) to reflect the reduction of
interest expense ($2,686,000) related to the repayment of bank indebtedness and
subordinated indebtedness due to the Principal Stockholder from proceeds of the
proposed Offering, as if it occurred at the beginning of the period presented,
and (iv) to give effect to the tax effects of these adjustments at statutory
rates (40.5%) assuming Amscan Inc., Am-Source, Inc., JCS Realty Corp. and SSY
Realty Corp. had not elected Subchapter S corporation status ($9,181,000).
The supplemental pro forma weighted average shares outstanding represent
the contemplated number of shares expected to be outstanding immediately after
the Offering.
(16) SUBSEQUENT EVENTS
(a) On April 5, 1996, certain of the Companies entered into an operating
lease agreement with a third party whereby the Companies may lease up to
$11,000,000 of machinery and equipment. The agreement provides for equal monthly
payments over 12 years, including renewal options. The agreement will be
classified as an operating lease for financial statement purposes, and
accordingly, the related assets and liabilities will not be reflected in the
Companies' financial statements.
In connection with this agreement, certain of the Companies have entered
into commitments for equipment with a fair value of approximately $10,400,000.
F-18
<PAGE> 80
AMSCAN INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995
Assuming the entire lease facility is utilized, future minimum lease
payments under the lease will be as follows ($ in thousands):
<TABLE>
<S> <C>
1997.............................................................. $ 1,305
1998.............................................................. 1,305
1999.............................................................. 1,305
2000.............................................................. 1,305
2001.............................................................. 1,305
Thereafter........................................................ 9,135
-------
$15,660
=======
</TABLE>
(b) In July 1996, certain operating leases with Uncombined Affiliates which
previously had remaining terms of up to sixteen years have been amended to terms
of up to six years. As a result of these reduced lease terms, future minimum
lease payments under all operating leases with Uncombined Affiliates, at
December 31, 1995 consisted of the following ($ in thousands):
<TABLE>
<S> <C>
1996.............................................................. $ 2,132
1997.............................................................. 2,246
1998.............................................................. 2,309
1999.............................................................. 2,374
2000.............................................................. 1,239
Thereafter........................................................ 167
-------
$10,467
=======
</TABLE>
F-19
<PAGE> 81
INDEPENDENT AUDITORS' REPORT
To the Stockholders of Amscan Inc.
and Affiliates:
We have audited the accompanying special purpose combined balance sheet of
Amscan Inc. and Affiliates as of September 30, 1996 and the related special
purpose combined statements of operations, stockholders' equity and cash flows
for the nine month period ended September 30, 1996. These special purpose
combined financial statements are the responsibility of the Companies'
management. Our responsibility is to express an opinion on these special purpose
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
The accompanying special purpose combined financial statements include the
accounts of Amscan Inc. and Affiliates, as defined in note (1). These financial
statements present the combined accounts of entities owned by the Principal
Stockholder engaged in the design, manufacture, contract for manufacture or
distribution of party and novelty goods.
In our opinion, the special purpose combined financial statements referred
to above present fairly, in all material respects, the combined financial
position of Amscan Inc. and Affiliates as of September 30, 1996, and the
combined results of their operations and their cash flows for the nine month
period ended September 30, 1996, in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
Stamford, Connecticut
November 22, 1996
F-20
<PAGE> 82
AMSCAN INC. AND AFFILIATES
COMBINED BALANCE SHEET
($ IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30,
1996
-------------
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents.................................................... $ 3,530
Accounts receivable, net of allowance of $3,161.............................. 51,359
Inventories.................................................................. 45,074
Deposits and other........................................................... 10,146
--------
Total current assets................................................. 110,109
Property, plant and equipment, net............................................. 30,409
Other assets................................................................... 5,235
--------
Total assets......................................................... $ 145,753
========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Loans payable................................................................ $ 47,955
Subordinated and other indebtedness to stockholders.......................... 35,900
Accounts payable............................................................. 4,326
Accrued expenses............................................................. 17,514
Current installments of long-term indebtedness............................... 2,318
--------
Total current liabilities............................................ 108,013
Long-term indebtedness, less current installments.............................. 12,412
Other.......................................................................... 689
--------
Total liabilities.................................................... 121,114
--------
Stockholders' equity:
Common stock................................................................. 393
Additional paid-in capital................................................... 1,490
Retained earnings............................................................ 23,490
Cumulative translation adjustment............................................ (647)
Treasury stock, at cost...................................................... (87)
--------
Total stockholders' equity........................................... 24,639
--------
Total liabilities and stockholders' equity........................... $ 145,753
========
</TABLE>
See accompanying notes to combined financial statements.
F-21
<PAGE> 83
AMSCAN INC. AND AFFILIATES
COMBINED STATEMENTS OF OPERATIONS
($ IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED
SEPTEMBER 30,
------------------------
1996
1995 -----------
--------
(UNAUDITED)
<S> <C> <C>
Net sales......................................................... $128,314 $ 147,008
Cost of sales..................................................... 81,719 92,861
-------- -----------
Gross profit.................................................... 46,595 54,147
-------- -----------
Operating Expenses:
Selling......................................................... 8,893 8,691
General and administrative...................................... 10,395 14,113
Art and development............................................. 2,936 3,671
Special bonuses................................................. 2,409 3,300
-------- -----------
Total operating expenses..................................... 24,633 29,775
-------- -----------
Income from operations....................................... 21,962 24,372
Interest expense, net............................................. 4,386 4,569
Other income, net................................................. (409) (301)
-------- -----------
Income before income taxes and minority interests................. 17,985 20,104
Income taxes...................................................... 498 767
Minority interests................................................ 722 1,242
-------- -----------
Net income................................................... $ 16,765 $ 18,095
======== ===========
Pro forma data (note (15)):
Net income before pro forma income taxes..................... $ 16,765 $ 18,095
Pro forma additional income tax expense...................... 6,435 7,121
-------- -----------
Pro forma net income......................................... $ 10,330 $ 10,974
======== ===========
Supplemental pro forma data (unaudited) (note (15)):
Supplemental pro forma net income............................ $ 14,678
===========
Supplemental pro forma net income per share.................. $ 0.67
===========
Supplemental pro forma weighted average shares outstanding... 22,000,000
===========
</TABLE>
See accompanying notes to combined financial statements.
F-22
<PAGE> 84
AMSCAN INC. AND AFFILIATES
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996
($ IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL CUMULATIVE
COMMON PAID-IN RETAINED TRANSLATION TREASURY
STOCK CAPITAL EARNINGS ADJUSTMENT STOCK TOTAL
------ ---------- -------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994.............. $393 $ 9,090 $ 12,037 $ (613) $(87) $ 20,820
Net income for the nine months ended
September 30, 1995 (unaudited)........ -- -- 16,765 -- -- 16,765
Subchapter S and other distributions
(unaudited)........................... -- -- (377) -- -- (377)
Net change in cumulative translation
adjustment (unaudited)................ -- -- -- (134) -- (134)
---- ------ ------- ----- ---- -------
Balance, September 30, 1995
(unaudited)........................... $393 $ 9,090 $ 28,425 $ (747) $(87) $ 37,074
==== ====== ======= ===== ==== =======
Balance, December 31, 1995.............. $393 $ 9,090 $ 18,462 $ (653) $(87) $ 27,205
Net income for the nine months ended
September 30, 1996.................... -- -- 18,095 -- -- 18,095
Subchapter S and other distributions.... -- (7,600) (13,067) -- -- (20,667)
Net change in cumulative translation
adjustment............................ -- -- -- 6 -- 6
---- ------ ------- ----- ---- -------
Balance, September 30, 1996............. $393 $ 1,490 $ 23,490 $ (647) $(87) $ 24,639
==== ====== ======= ===== ==== =======
</TABLE>
See accompanying notes to combined financial statements.
F-23
<PAGE> 85
AMSCAN INC. AND AFFILIATES
COMBINED STATEMENTS OF CASH FLOWS
($ IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED SEPTEMBER 30,
--------------------
1996
1995 --------
-------
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net income.......................................................... $16,765 $ 18,095
Adjustments to reconcile net income to net cash used in operating
activities:
Depreciation and amortization.................................... 3,156 3,579
Provision for doubtful accounts.................................. 585 963
Changes in operating assets and liabilities:
Accounts receivable............................................ (20,098) (20,442)
Inventories.................................................... (5,858) (61)
Deposits and other............................................. (2,990) (7,226)
Other assets................................................... (2,776) (1,177)
Accounts payable and accrued expenses.......................... 672 6,459
Other.......................................................... 631 (511)
-------- --------
Net cash used in operating activities.......................... (9,913) (321)
-------- --------
Cash flows from investing activities:
Capital expenditures................................................ (3,773) (3,691)
-------- --------
Net cash used in investing activities............................ (3,773) (3,691)
-------- --------
Cash flows from financing activities:
Proceeds from loans payable and long term indebtedness........... 15,382 10,242
Repayment of loans payable and long term indebtedness............ (2,289) (2,003)
Proceeds from loans, notes payable and subordinated indebtedness
from Principal Stockholder...................................... 1,408 --
Repayment of loans and notes payable to Principal Stockholder.... -- (3,220)
Subchapter S and other distributions............................. (377) --
-------- --------
Net cash provided by financing activities...................... 14,124 5,019
-------- --------
Effect of exchange rate changes on cash.......................... (151) 31
-------- --------
Net increase in cash and cash equivalents...................... 287 1,038
Cash and cash equivalents at beginning of period...................... 2,229 2,492
-------- --------
Cash and cash equivalents at end of period............................ $ 2,516 $ 3,530
======== ========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest....................................................... $ 3,214 $ 4,970
Taxes.......................................................... $ 402 $ 546
</TABLE>
Supplemental information on non-cash investing and financing activities:
Capital lease obligations of $2,074 were incurred for the nine months ended
September 30, 1996. There were no capital lease obligations incurred for the
nine months ended September 30, 1995.
During September 1996, certain of the Companies declared the distribution of
$7,600,000 of previously provided capital and $13,067,000 of previously
undistributed earnings. Such amounts are included in subordinated and other
indebtedness to stockholders.
See accompanying notes to combined financial statements.
F-24
<PAGE> 86
AMSCAN INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(1) DESCRIPTION OF BUSINESS
The accompanying special purpose combined financial statements include the
accounts of Amscan Inc. and certain of its affiliates (the "Companies"). The
Companies design, manufacture, contract for manufacture and distribute party and
novelty goods to retailers and wholesale distributors principally in the United
States, Canada and Europe.
BASIS OF COMBINATION
These combined financial statements present the Companies on a combined
basis because of their common ownership by Mr. John A. Svenningsen (the
"Principal Stockholder"). The name, the Principal Stockholder's ownership and a
brief description of each of the combined entity's principal business activity
is presented below.
<TABLE>
<CAPTION>
PRINCIPAL
STOCKHOLDER'S
ENTITY OWNERSHIP PRINCIPAL ACTIVITY
------------------------------------ ------------- --------------------------------
<S> <C> <C>
Amscan Inc.......................... 100% Manufacturer -- paper tableware;
and distributor -- worldwide
Am-Source, Inc...................... 50% Manufacturer -- plastic products
Trisar, Inc......................... 100% Manufacturer -- gift products
Amscan Distributors (Canada) Ltd.... 100% Distributor -- Canada
Amscan Holdings Limited............. 75% Distributor -- United Kingdom
Amscan (Asia Pacific) Pty. Ltd...... 85% Distributor -- Australia and
Asia
Amscan Partyartikel GmbH............ 95% Distributor -- Germany
Amscan Svenska AB................... 100% Distributor -- Sweden
Amscan de Mexico, S.A. de C.V....... 48% Distributor -- Mexico
JCS Realty Corp..................... 100% Real estate -- Canada
SSY Realty Corp..................... 100% Real estate -- United States
</TABLE>
The less than majority owned entities are combined in the accompanying
financial statements. The inclusion of the less than majority-owned entities
both individually and collectively is not material to the accompanying combined
financial statements taken as a whole. All material intercompany balances and
transactions have been eliminated in combination.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH EQUIVALENTS
Highly liquid investments with a maturity of three months or less when
purchased are considered to be cash equivalents.
INVENTORIES
Substantially all inventories of the Companies are valued at the lower of
cost or market (principally on the first-in, first-out method).
PROPERTY, PLANT, AND EQUIPMENT
Property, plant and equipment are stated at cost. Machinery and equipment
under capital leases are stated at the present value of the minimum lease
payments at the inception of the lease.
F-25
<PAGE> 87
AMSCAN INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1996
Depreciation is calculated principally on the straight-line method over the
estimated useful lives of the assets. Machinery and equipment held under capital
leases and leasehold improvements are amortized straight-line over the shorter
of the lease term or estimated useful life of the asset.
OTHER ASSETS
Included in other assets are capitalized costs which represent third party
costs incurred to manufacture and commercialize designs for production,
including the acquisition of printing plates. Accordingly these costs are
amortized on a straight line basis over their estimated useful lives of three
years. The amortization of such costs is included in cost of sales and was
$864,000 (unaudited) and $1,127,000, respectively, for the nine months ended
September 30, 1995 and 1996.
REVENUE RECOGNITION
The Companies recognize revenue from product sales when the goods are
shipped to the customer. Product returns and warranty costs are immaterial.
CATALOGUE COSTS
The Companies expense costs associated with the production of annual
catalogues when incurred.
ART AND DEVELOPMENT COSTS
Art and development costs are primarily internal costs that are not easily
associated with specific designs which may reach commercial production.
Accordingly, the Companies expense these costs as incurred.
INCOME TAXES
Certain of the affiliates have elected Subchapter S corporation status for
U.S. federal and state income tax purposes. Income taxes, therefore, are
principally the responsibility of the stockholders. Income taxes for all other
entities, including foreign distributors, are computed in accordance with the
tax laws in the jurisdictions in which the entities operate.
FOREIGN CURRENCY TRANSACTIONS AND TRANSLATION
Realized foreign currency exchange gains or losses, which result from the
settlement of receivables or payables in currencies other than U.S. dollars, are
credited or charged to operations. Unrealized gains or losses on foreign
currency exchanges are insignificant.
The balance sheets of foreign affiliates are translated into U.S. dollars
at the exchange rates in effect on the balance sheet date. The results of
operations of foreign affiliates are translated into U.S. dollars at the average
exchange rates effective for the periods presented. The differences from
historical exchange rates are reflected as a separate component of stockholders'
equity.
CONCENTRATION OF CREDIT RISK
While the Companies' customers are geographically disbursed throughout
North America, South America, Europe, Asia and Australia, there is a
concentration of sales made to and accounts receivable from the stores which
operate in the party superstore channel of distribution. At September 30, 1996,
the Companies' two largest customers, with approximately 185 stores,
F-26
<PAGE> 88
AMSCAN INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1996
accounted for 14% of combined accounts receivable. For the nine months ended
September 30, 1995 and 1996, sales to the Companies' two largest customers
represented 16% (unaudited), and 21%, respectively, of combined net sales. Of
such amount, sales to the Companies' largest customer represented 11%
(unaudited) and 14%, respectively. No other group or combination of customers
subjected the Companies to a concentration of credit risk.
USE OF ESTIMATES
Management has made estimates and assumptions relating to the reporting of
assets and liabilities to prepare these financial statements in conformity with
generally accepted accounting principles. Actual results could differ from those
estimates.
RECENTLY ISSUED ACCOUNTING STANDARDS
In October 1995, the Financial Accounting Standards Board (FASB) issued
Statement on Financial Accounting Standards (SFAS) No. 123 -- Accounting for
Stock-Based Compensation. As allowable by SFAS 123, the Companies do not intend
to recognize compensation cost for stock-based employee compensation
arrangements, but rather, starting with fiscal 1996, will disclose the pro-forma
impact on net income and earnings per share as if the fair value stock-based
compensation had been recognized starting with fiscal 1995.
In March 1995, the FASB issued SFAS 121 -- Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. SFAS 121 did not
have a significant impact on the financial position or results of operations of
the Companies.
Other pronouncements issued by the FASB or other authoritative accounting
standard groups with future effective dates are either not applicable or not
significant to the financial statements of the Companies.
(3) INVENTORIES
Inventories at September 30, 1996 consisted of the following ($ in
thousands):
<TABLE>
<S> <C>
Finished goods............................................................ $41,210
Raw materials............................................................. 2,977
Work-in-process........................................................... 2,116
-------
46,303
Less: Reserve for slow moving and obsolete inventory...................... (1,229)
-------
$45,074
=======
</TABLE>
F-27
<PAGE> 89
AMSCAN INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1996
(4) PROPERTY, PLANT AND EQUIPMENT
Major classifications of property, plant and equipment at September 30,
1996 consisted of the following ($ in thousands):
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIVES
------------
<S> <C> <C>
Machinery and equipment...................................... $ 21,557 5-15
Data processing equipment.................................... 7,762 5
Leasehold improvements....................................... 5,000 25
Furniture and fixtures....................................... 2,756 10
Buildings.................................................... 10,268 31-40
Land......................................................... 1,920 --
-------
49,263
Less: accumulated depreciation and amortization.............. (18,854)
-------
$ 30,409
=======
</TABLE>
Depreciation and amortization expense was $2,029,000 (unaudited) and
$2,189,000 for the nine months ended September 30, 1995 and 1996, respectively.
(5) LOANS PAYABLE
In 1995, certain of the Companies entered into a revolving credit agreement
with several banks which expires on September 20, 2000. Amounts available for
borrowing under this agreement, subject to asset availability and other
restrictions, are as follows:
<TABLE>
<S> <C>
September 20, 1996 -- September 19, 1997.............................. $55,000,000
September 20, 1997 -- September 20, 2000.............................. $60,000,000
</TABLE>
Such revolving credit agreement is collateralized by a first lien on
certain of the assets of the Companies. The revolving credit agreement provides
for interest on the borrowings to be based on either a prime borrowing rate or
LIBOR plus 0.875%, whichever is lower. Additionally, the revolving credit
agreement requires the Companies to comply with certain covenants including the
maintenance of financial ratios, as defined. At September 30, 1996, the
Companies were in compliance with all such covenants.
Loans payable outstanding at September 30, 1996 consisted of the following
($ in thousands):
<TABLE>
<S> <C>
Revolving credit line with interest at LIBOR plus 0.875% (6.59% at
September 30, 1996)..................................................... $40,000
Revolving credit line with interest at the prime rate (8.25% at September
30, 1996)............................................................... 5,830
Revolving credit line denominated in Canadian dollars with interest at the
Canadian prime rate (5.75% at September 30, 1996)....................... 1,455
Revolving credit line denominated in British Pounds Sterling with interest
at the U.K. Base rate plus 2% (7.75% at September 30, 1996)............. 670
-------
$47,955
=======
</TABLE>
The weighted average interest rate on loans payable outstanding at
September 30, 1996 was 6.78%.
F-28
<PAGE> 90
AMSCAN INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1996
The Companies are currently involved in three interest rate swap
transactions covering $25,000,000 of the outstanding obligation under the
revolving credit agreement. The transactions fix the interest rates as indicated
below and entitle the Companies to settle with the counterparty on a quarterly
basis, the product of the notional amount times the amount, if any, by which the
ninety day LIBOR exceeds the fixed rate. Net payments to the counterparty under
the swap agreements for the nine months ended September 30, 1995 and 1996, which
have been recorded as additional interest expense, consisted of the following ($
in thousands):
<TABLE>
<CAPTION>
ADDITIONAL INTEREST
EXPENSE
NOTIONAL --------------------
DATE OF CONTRACT AMOUNT TERM FIXED RATE 1995 1996
----------------------------- -------- -------- ---------- ----------- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
September 28, 1994........... $ 5,000 10 years 7.945% $ 68 $ 92
May 12, 1995................. $ 10,000 5 years 6.590% 24 79
July 20, 1995................ $ 10,000 10 years 6.750% 16 91
---- ----
$ 108 $262
==== ====
</TABLE>
(6) LONG-TERM INDEBTEDNESS
Long-term indebtedness at September 30, 1996 consisted of the following ($
in thousands):
<TABLE>
<S> <C>
Mortgage obligations(a)................................................... $ 6,422
Term loans(b)............................................................. 4,174
Capital lease obligations(c).............................................. 4,134
-------
Total long-term indebtedness............................................ 14,730
Less: current installments................................................ (2,318)
-------
Long-term indebtedness, excluding current installments.................... $12,412
=======
</TABLE>
- ---------------
(a) Certain of the Companies have mortgage obligations payable to financial
institutions relating to distribution facilities due through September 13,
2004. The mortgages are collateralized by specific real estate assets of
the Companies and carry interest rates ranging from the Canadian prime rate
plus 0.5% (6.25% as of September 30, 1996) to 8.51%. At September 30, 1996,
$1,700,000 of mortgage obligations are denominated in Canadian dollars.
(b) Certain of the Companies have various term loans payable to financial
institutions due through April 1, 2002. The loans are collateralized by
specific assets of the Companies and carry interest rates which range from
8.01% to 9.5%.
(c) Certain of the Companies have entered into various capital leases for
machinery and equipment with implicit interest rates ranging from 6.5% to
23.0% and which extend to 2001.
F-29
<PAGE> 91
AMSCAN INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1996
At September 30, 1996, principal maturities of long-term indebtedness
consisted of the following ($ in thousands):
<TABLE>
<CAPTION>
CAPITAL
AT SEPTEMBER 30, INDEBTEDNESS LEASE OBLIGATIONS TOTAL
------------------------------------- ------------ ----------------- -------
<S> <C> <C> <C>
1997................................. $ 1,649 $ 907 $ 2,556
1998................................. 1,339 942 2,281
1999................................. 1,263 902 2,165
2000................................. 1,216 834 2,050
2001................................. 1,173 1,235 2,408
Thereafter........................... 3,955 150 4,105
------- ------ -------
10,595 4,970 15,565
Amount representing interest......... -- (835) (835)
------- ------ -------
Long-term indebtedness............... $ 10,595 $ 4,135 $14,730
======= ====== =======
</TABLE>
(7) DUE TO PRINCIPAL STOCKHOLDER
Certain of the Companies owe $34,150,000 to the Principal Stockholder as of
September 30, 1996 under a subordinated note with interest payable monthly. This
note is subject to a subordination agreement among the Principal Stockholder,
Amscan Inc., and the lenders involved with the revolving credit agreement as
discussed in note (5). Under the terms of the subordination agreement, the
payment of any principal evidenced by the subordinated note is prohibited.
Interest is at the prime rate plus 0.5% (8.75% at September 30, 1996).
(8) EMPLOYEE BENEFIT PLANS
Certain of the Companies maintain a profit-sharing plan for all eligible
employees providing for annual discretionary contributions to a trust. As of
January 1, 1995, the plan required the Companies to match 25% of the first 6% of
an employee's contribution to the plan. Benefit expense for the nine months
ended September 30, 1995 and 1996 totaled $459,000 (unaudited) and $466,000,
respectively.
(9) SPECIAL BONUS ARRANGEMENTS
During the periods presented, Amscan Inc. had employment agreements with
certain key executives and senior managers which provided for these individuals
to receive annual bonuses based upon the pre-tax income of Amscan Inc. and
certain of its affiliates. These bonuses which amounted to approximately 18% to
20% of pre-tax income are reflected in the Combined Statements of Operations in
the caption "Special Bonuses." At September 30, 1996, $3,300,000 was accrued for
such bonuses and included in accrued expenses.
(10) INCOME TAXES
The entities Amscan Inc., Am-Source, Inc., JCS Realty Corp. and SSY Realty
Corp. have elected Subchapter S corporation status. Accordingly, these entities
are generally not subject to federal and state income taxes, to the extent that
states recognize Subchapter S corporation status.
Current income tax expense and deferred taxes generally arise from taxes on
income generated by foreign affiliates at the effective rate in effect in each
of the taxing jurisdictions. Deferred taxes arising from timing differences are
not significant.
Domestic and foreign pre-tax income is $16,358,000 (unaudited) and
$1,627,000 (unaudited), and $18,485,000 and $1,619,000, in each of the nine
months ended September 30, 1995 and 1996, respectively.
F-30
<PAGE> 92
AMSCAN INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1996
A summary of the operations subject to tax, their reported tax expense and
effective tax rates for the nine months ended September 30, 1995 and 1996,
consisted of the following ($ in thousands):
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
-----------------------------------------------
1995 1996
--------------------- ---------------------
TAX EFFECTIVE TAX EFFECTIVE
EXPENSE RATE EXPENSE RATE
------- --------- ------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
Amscan Distributors (Canada) Ltd........... $ 294 36% $ 204 38%
Amscan Holdings Limited.................... 174 33% 194 34%
Amscan (Asia Pacific) Pty. Ltd............. 30 33% 101 34%
Other...................................... -- --% 268 1%
--- ---
$ 498 $ 767
=== ===
</TABLE>
(11) COMMON STOCK
Common Stock for each of the combined entities is as follows:
Amscan Inc.:
No par value; 1,000 shares authorized, 990 shares issued and
outstanding (including 330 shares of treasury stock).
Am-Source, Inc.:
No par value; 1,000 shares authorized, 120 shares issued and
outstanding.
Trisar, Inc.:
No par value; 10,000 shares authorized, 266.66 shares issued and
outstanding.
Amscan Distributors (Canada) Ltd.:
$1 (Canadian) par value; 10,000 shares authorized, 3,000 shares issued
and outstanding.
Amscan Holdings Limited:
Ordinary Shares:
20p par value; 1,250,000 shares authorized, 287,500 issued and
outstanding.
Preference Shares:
One British Pound Sterling par value; 5,000 shares authorized, issued
and outstanding.
Amscan (Asia Pacific) Pty. Ltd.:
Aus. $1 par value; 10,000 shares authorized, 886 shares issued and
outstanding.
Amscan Partyartikel GmbH:
No par value; 50,000 shares authorized, issued and outstanding.
Amscan Svenska AB:
No par value; 1,500 shares authorized, issued and outstanding.
Amscan de Mexico, S.A. de C.V.:
Class A Shares:
No stated value, fixed capital; 31 shares authorized, issued and
outstanding.
Class A-1 Shares:
No stated value, variable capital; 620 shares authorized, issued
and outstanding.
Class B Shares:
No stated value, fixed capital; 29 shares authorized, issued and
outstanding.
Class B-1 Shares:
No stated value, variable capital; 580 shares authorized, issued
and outstanding.
JCS Realty Corp.:
No par value; 200 shares authorized, one share issued and outstanding.
SSY Realty Corp.:
No par value; 200 shares authorized issued and outstanding.
F-31
<PAGE> 93
AMSCAN INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1996
(12) COMMITMENTS AND CONTINGENCIES
LEASES
The Companies are obligated under various capital leases for certain
machinery and equipment which expire on various dates through June 1, 2001 (see
also note (6)). At September 30, 1996, the amount of machinery and equipment and
related accumulated amortization recorded under capital leases is included with
property, plant and equipment and consisted of the following ($ in thousands):
<TABLE>
<S> <C>
Machinery and equipment..................................................... $5,146
Less: accumulated amortization.............................................. (767)
------
$4,379
======
</TABLE>
Amortization of assets held under capitalized leases is included with
depreciation expense.
The Companies have several noncancelable operating leases with unaffiliated
third parties, primarily for office and manufacturing space, showrooms, and
warehouse equipment that expire over the next eight years. These leases
generally contain renewal options and require the Companies to pay real estate
taxes, utilities and related insurance.
At September 30, 1996, certain of the Companies also had noncancelable
operating leases with the Principal Stockholder and real estate entities owned
either directly or indirectly by the Principal Stockholder ("Uncombined
Affiliates") for warehouse and office space that expire over the next five
years. Rent due to Uncombined Affiliates represents future commitments
associated with property leased by the Companies from the Principal Stockholder
or such entities owned directly or indirectly by the Principal Stockholder.
At September 30, 1996 future minimum lease payments under all operating
leases consisted of the following ($ in thousands):
<TABLE>
<CAPTION>
FOR THE TWELVE
MONTHS ENDED UNCOMBINED
SEPTEMBER 30, THIRD PARTIES AFFILIATES TOTAL
------------------------------- ------------- ---------- -------
<S> <C> <C> <C>
1997........................... $ 3,068 $2,231 $ 5,299
1998........................... 2,653 2,293 4,946
1999........................... 1,709 2,357 4,066
2000........................... 1,061 1,585 2,646
2001........................... 1,043 418 1,461
Thereafter..................... 2,426 -- 2,426
------- ------ -------
$11,960 $8,884 $20,844
======= ====== =======
</TABLE>
Rent expense for the nine months ended September 30, 1995 and 1996 was
$1,781,000 (unaudited) and $3,878,000, respectively, of which $698,000
(unaudited) and $1,586,000, respectively, related to leases with Uncombined
Affiliates.
(13) SEGMENT INFORMATION
INDUSTRY SEGMENTS
The Companies operate in primarily one industry segment which involves the
design, manufacture, contract for manufacture and distribution of party and
novelty goods to retailers and wholesale distributors.
F-32
<PAGE> 94
AMSCAN INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1996
GEOGRAPHIC SEGMENTS
The Companies' export sales, other than those intercompany sales reported
below as sales between geographic areas, are not material. Sales between
geographic areas primarily consist of sales of finished goods for distribution
in the foreign markets.
The Companies' geographic area data for the nine months ended September 30,
1995 and 1996 consisted of the following ($ in thousands):
<TABLE>
<CAPTION>
DOMESTIC FOREIGN ELIMINATIONS COMBINED
-------- ------- ------------ --------
<S> <C> <C> <C> <C>
NINE MONTHS ENDED SEPTEMBER 30, 1995
(UNAUDITED)
Sales to unaffiliated customers............. $113,102 $15,212 $128,314
Sales between geographic areas.............. 5,629 -- $ (5,629) --
-------- ------- ------- --------
Net sales................................... $118,731 $15,212 $ (5,629) $128,314
======== ======= ======= ========
Income from operations...................... $ 20,569 $ 1,393 $ 21,962
======== =======
Interest expense, net....................... 4,386
Other income, net........................... (409)
--------
Income before income taxes and minority
interests................................. $ 17,985
========
Identifiable assets......................... $111,328 $14,613 $125,941
======== ======= ========
<CAPTION>
DOMESTIC FOREIGN ELIMINATIONS COMBINED
-------- ------- ------- --------
<S> <C> <C> <C> <C>
NINE MONTHS ENDED SEPTEMBER 30, 1996
Sales to unaffiliated customers............. $129,810 $17,198 $147,008
Sales between geographic areas.............. 7,006 72 $(7,078) --
-------- ------- ------- --------
Net sales................................... $136,816 $17,270 $(7,078) $147,008
======== ======= ======= ========
Income from operations...................... $23,083 $1,289 $24,372
======== =======
Interest expense, net....................... 4,569
Other income, net........................... (301)
--------
Income before income taxes and minority
interests................................. $20,104
========
Identifiable assets......................... $132,834 $12,919 $145,753
======== ======= ========
</TABLE>
(14) FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts for cash and cash equivalents, accounts receivables,
deposits and other current assets, loans and notes payable, accounts payable,
accrued expenses (non derivatives) and other current liabilities approximates
fair value at September 30, 1996 because of the short term maturity of those
instruments or their variable rate of interest.
The carrying amounts for long term debt approximates fair value at
September 30, 1996. Fair value has been estimated by discounting the future cash
flow of each instrument at rates currently offered for similar debt instruments
of comparable maturity.
Fair value amounts for loans and notes payable to Principal Stockholder are
not presented due to the related party nature of the indebtedness and the
ability of the Principal Stockholder to amend the features of the debt
instruments.
F-33
<PAGE> 95
AMSCAN INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1996
The fair value of interest rate swaps is the estimated amount that the Bank
would receive or pay to terminate the swap agreements at the reporting date,
taking into account current interest rates and the current creditworthiness of
the swap counterparties. Termination of the swap agreements at September 30,
1996 would require certain of the Companies to pay the Bank $358,000.
(15) PRO FORMA DATA AND SUPPLEMENTAL PRO FORMA DATA (UNAUDITED)
In connection with a proposed initial public offering of its common stock
(the "Offering") Amscan Holdings, Inc. was formed on October 3, 1996 for the
purpose of becoming the holding company for the business conducted by the
Companies. Such transfer of ownership will be accounted for in a manner similar
to a pooling of interests and will result in Amscan Inc., Am-Source, Inc., JCS
Realty Corp. and SSY Realty Corp. being taxed as Subchapter C corporations under
federal and certain state income tax requirements.
Pro forma net income for the nine months ended September 30, 1995
(unaudited) and 1996 give effect to pro forma income tax provisions at statutory
rates (40.5%) assuming Amscan Inc., Am-Source, Inc., JCS Realty Corp. and SSY
Realty Corp. had not elected Subchapter S corporation status for those periods.
In addition to the pro forma additional income tax expense, there are other
events contemplated in connection with the Offering that have been reflected in
the supplemental pro forma net income for the nine months ended September 30,
1996 which causes such amount to be higher than the pro forma net income amount.
The supplemental pro forma net income for the nine months ended September
30, 1996 gives effect to (i) reduction in compensation paid to certain employees
to the extent such compensation exceeded the compensation payable to such
individuals under certain prospective compensation agreements ($3,300,000), (ii)
to reflect amortization of goodwill ($188,000) and elimination of minority
interest related to the 50% acquisition of Am-Source, Inc. as if it were
acquired at the beginning of the period presented ($1,138,000), (iii) to reflect
the reduction of interest expense ($2,102,000) related to the repayment of bank
indebtedness and subordinated indebtedness due to the Principal Stockholder from
proceeds of the proposed Offering, as if it occurred at the beginning of the
period presented, and (iv) to give effect to the tax effects of these
adjustments at statutory rates (40.5%) assuming Amscan Inc., Am-Source, Inc.,
JCS Realty Corp. and SSY Realty Corp. had not elected Subchapter S corporation
status ($9,769,000).
The above pro forma and supplemental pro forma adjustments do not include
anticipated non-recurring expenses of $12,980,000 and $3,000,000 relating to
compensation expense to be incurred at the consummation of the Offering in
connection with cash and stock to be paid to certain executives and employees,
and the establishment of an ESOP and bonuses payable in shares of Common Stock
for the benefit of the Company's domestic employees.
The supplemental pro forma weighted average shares outstanding represent
the contemplated number of shares expected to be outstanding immediately after
the Offering.
F-34
<PAGE> 96
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Amscan Holdings, Inc.:
We have audited the accompanying balance sheet of Amscan Holdings, Inc. as of
December 13, 1996. This financial statement is the responsibility of the
Company's management. Our responsibility is to express an opinion on this
financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the balance sheet is free of material misstatement. An
audit of a balance sheet includes examining, on a test basis, evidence
supporting the amounts and disclosures in that balance sheet. An audit of a
balance sheet also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
balance sheet presentation. We believe that our audit of the balance sheet
provides a reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of Amscan Holdings, Inc. as of
December 13, 1996, in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Stamford, Connecticut
December 13, 1996
F-35
<PAGE> 97
AMSCAN HOLDINGS, INC.
BALANCE SHEET
DECEMBER 13, 1996
<TABLE>
<S> <C>
Cash......................................................................... $ 100
=====
Preferred stock ($0.10 par value; 5,000,000 shares authorized; none issued
and outstanding)........................................................... $ --
Common stock ($0.10 par value; 50,000,000 shares authorized; 1,000 shares
issued and outstanding).................................................... 100
-----
Total equity............................................................ $ 100
=====
</TABLE>
NOTE TO BALANCE SHEET
Amscan Holdings, Inc. was organized on October 3, 1996 for the purpose of
becoming the holding company for the businesses conducted by Amscan Inc. and
certain affiliated companies. The only transaction to-date has been the initial
capitalization of $100.
F-36
<PAGE> 98
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Company has agreed to sell to each of the Underwriters named below, and each of
such Underwriters, for whom Goldman, Sachs & Co. and Alex. Brown & Sons
Incorporated are acting as representatives, has severally agreed to purchase
from the Company, the respective number of shares of Common Stock set forth
opposite its name below:
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF
UNDERWRITER COMMON STOCK
---------------------------------------------------------------------- ------------
<S> <C>
Goldman, Sachs & Co...................................................
Alex. Brown & Sons Incorporated.......................................
-------
Total....................................................... 5,350,000
=======
</TABLE>
Under the terms and conditions of the Underwriting Agreement, the
Underwriters are committed to take and pay for all of the shares offered hereby,
if any are taken.
The Underwriters propose to offer the shares of Common Stock in part
directly to the public at the initial public offering price set forth on the
cover page of this Prospectus and in part to certain securities dealers at such
price less a concession of $ per share. The Underwriters may allow, and
such dealers may reallow, a concession not in excess of $ per share to
certain brokers and dealers. After the shares of Common Stock are released for
sale to the public, the offering price and other selling terms may from time to
time be varied by the representatives.
The Company has granted the Underwriters an option exercisable for 30 days
after the date of this Prospectus to purchase up to an aggregate of 802,500
additional shares of Common Stock to cover over-allotments, if any. If the
Underwriters exercise their over-allotment option, the Underwriters have
severally agreed, subject to certain conditions, to purchase approximately the
same percentage thereof that the number of shares to be purchased by each of
them, as shown in the foregoing table, bears to the 5,350,000 shares of Common
Stock offered.
The Company, John A. Svenningsen and the SSY Trusts have agreed that,
during the period beginning from the date of this Prospectus and continuing to
and including the date 180 days after the date of the Prospectus, they will not
offer, sell, contract to sell or otherwise dispose of any securities of the
Company including, but not limited to any securities that are exercisable or
exchangeable for, that represent the right to receive or that are convertible
into or whose exercise or settlement price is derivable from the price of the
Common Stock or any substantially similar securities without the prior written
consent of the representatives of the Underwriters, except for (i) the issuance
of shares to the ESOP and issuance of Common Stock to employees therefrom
or in the form of stock bonuses to certain domestic employees and (ii) options
under the Stock Option Plan.
An affiliate of Chase Securities, Inc. from time to time engages in general
financing and banking transactions with the Company and its affiliates in the
normal course of business and is a lender under the Company's revolving credit
agreement. An amount that may exceed 10% of the net proceeds from the sale of
Common Stock will be used to repay indebtedness under the revolving credit
agreement to such affiliate of Chase Securities, Inc. See "Use of Proceeds."
Accordingly, this offering is being conducted in conformity with Rules 2710(8)
and 2720(c)(3) of the Conduct Rules of the National Association of Securities
Dealers, Inc. ("NASD"), which provide that, among other
U-1
<PAGE> 99
things, when an NASD member participates in an underwriting where more than 10%
of the net offering proceeds, not including underwriting compensation, are
intended to be paid to such member or its affiliate, the initial public offering
price can be no higher than that recommended by a "qualified independent
underwriter" meeting certain standards. In accordance with this requirement,
Goldman, Sachs & Co. has served in such role and has recommended a price in
compliance with the requirements of Rule 2720(c)(3). Goldman, Sachs & Co. will
receive compensation from the Company in the amount of $10,000 for serving in
such role. In connection with the offering, Goldman, Sachs & Co. in its role as
qualified independent underwriter has performed due diligence investigations and
reviewed and participated in the preparation of this Prospectus and the
Registration Statement of which this Prospectus forms a part.
The representatives of the Underwriters have informed the Company that they
do not expect sales to accounts over which the Underwriters exercise
discretionary authority to exceed five percent of the total number of shares of
Common Stock offered by them.
Prior to this Offering, there has been no public market for the shares. The
initial public offering price will be negotiated among the Company and the
representatives. Among the factors to be considered in determining the initial
public offering price of the Common Stock, in addition to prevailing market
conditions, will be the Company's historical performance, estimates of the
business potential and earnings prospects of the Company, an assessment of the
Company's management and the consideration of the above factors in relation to
market valuation of companies in related businesses.
Application has been made to have the Common Stock approved for quotation
on The Nasdaq Stock Market, Inc. under the symbol "AMSN."
The Company, certain of its operating subsidiaries and John A. Svenningsen
have agreed to indemnify the several Underwriters against certain liabilities,
including liabilities under the Securities Act of 1933.
U-2
<PAGE> 100
[GRAPHIC MATERIAL PHOTOGRAPHS OF CERTAIN OF THE COMPANY'S
MANUFACTURING EQUIPMENT]
<PAGE> 101
- ------------------------------------------------------------
- ------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH
SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary......................... 3
The Company................................ 7
Risk Factors............................... 7
Organization of the Company................ 10
Use of Proceeds............................ 13
Capitalization............................. 14
Dilution................................... 15
Selected Historical Combined
Financial Data........................... 16
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................... 19
Supplemental Pro Forma Combined Financial
Statements (unaudited)................... 30
Business................................... 35
Management of the Company.................. 43
Principal Stockholders..................... 51
Certain Related Transactions............... 52
Description of the Company's Capital
Stock.................................... 53
Shares Eligible for Future Sale............ 56
Validity of Common Stock................... 58
Experts.................................... 58
Other Information.......................... 58
Index to Combined Financial Statements..... F-1
Underwriting............................... U-1
</TABLE>
THROUGH AND INCLUDING , 1997 (THE 25TH DAY AFTER THE DATE OF
THIS PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK,
WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A
PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------------------------------------------------------------
5,350,000 SHARES
AMSCAN HOLDINGS, INC.
COMMON STOCK
(PAR VALUE $0.10 PER SHARE)
------------------------
[AMSCAN LOGO]
------------------------
GOLDMAN, SACHS & CO.
ALEX. BROWN & SONS
INCORPORATED
REPRESENTATIVES OF THE UNDERWRITERS
- ------------------------------------------------------------
- ------------------------------------------------------------
<PAGE> 102
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth an itemization of all estimated expenses in
connection with the issuance and distribution of the securities being
registered:
<TABLE>
<S> <C>
Registration Statement Filing Fee..................................... $ 26,101.52
NASD Filing Fee....................................................... 9,729.00
Legal Fees and Expenses............................................... 200,000.00
Accounting Fees and Expenses.......................................... 325,000.00
Printing Costs........................................................ 90,000.00
Fees and Expenses (including legal fees) for qualifications under
State Securities laws............................................... 20,000.00
Transfer Agent's Fees and Expenses.................................... 7,500.00
Miscellaneous......................................................... 3,169.48
-----------
Total....................................................... $681,500.00
============
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Registrant's By-Laws provide for indemnification by the Registrant of
its directors and officers to the full extent permitted by the Delaware General
Corporation Law (the "DGCL"). The Registrant is empowered by Section 145 of the
DGCL, subject to the procedures and limitations stated therein, to indemnify any
person against expenses (including attorneys' fees), judgments, fines, and
amounts paid in settlement actually and reasonably incurred by him in connection
with any threatened, pending or completed action, suit or proceeding in which
such person was or is made a party by reason of his being or having been a
director, officer, employee or agent of the Registrant, if he acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the Registrant, and, with respect to any criminal action or
proceeding, if he had no reasonable cause to believe his conduct was unlawful.
The statute provides that indemnification pursuant to its provisions is not
exclusive of other rights of indemnification to which a person may be entitled
under any By-Law, agreement, vote of stockholders or disinterested directors, or
otherwise. The Registrant has also agreed to indemnify each director pursuant to
an Indemnification Agreement with such director from and against any and all
expenses, losses, claims, damages and liabilities incurred by such director for
or as a result of action taken or not taken while such director was acting in
his capacity as a director, officer, employee or agent of the Registrant.
The Registrant maintains a liability and indemnification insurance policy
in the amount of $5,000,000 for a period extending through 1999 issued by Gulf
Insurance Company covering all officers and directors of the Registrant, at an
aggregate expense of approximately $248,000.
Reference is made to Section 9(b) of the Underwriting Agreement filed as
Exhibit 1 hereto for provisions relating to indemnification of officers and
directors of the Company by the Underwriters.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
In connection with the formation of the Registrant, the Registrant sold
1,000 shares of Common Stock to John A. Svenningsen for $100 in cash. Such
shares were sold to Mr. Svenningsen for the purpose of facilitating the
Organization and the Offering (as those terms are defined in the Prospectus
constituting a part of this Registration Statement (the "Prospectus") by
establishing a corporate structure including a stockholder and board of
directors necessary for the Registrant to implement the Offering. Additional
shares of Common Stock will be issued prior to completion of the Offering in
connection with effecting the Organization. See "Organization of the Company" in
the Prospectus. All of such shares were or will be issued and sold by the
Registrant in reliance on the exemption contained in Section 4(2) of the
Securities Act of 1933.
II-1
<PAGE> 103
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<C> <S> <C> <C>
** Exhibit 1 -- Form of Underwriting Agreement
** Exhibit 2(a) -- Form of Share Exchange Agreement, dated as of December , 1996 among
the Company, John A. Svenningsen, Gerald C. Rittenberg and the
following trusts each created by agreement dated as of October 29,
1996: Christina Svenningsen Trust, Jon Svenningson Trust, Elisabeth
Svenningsen Trust, Melissa Svenningsen Trust, Emily Svenningsen Trust
and Sara Svenningsen Trust
* Exhibit 2(b) -- Capital Contribution Agreement between the Company and Messrs. Allen J.
Kaufman, Arthur J. Kaufman and Michael F. Hodges, dated as of October
9, 1996, as supplemented
* Exhibit 3(a) -- Certificate of Incorporation of the Registrant, dated October 3, 1996
* Exhibit 3(b) -- By-Laws of the Registrant
* Exhibit 4(a) -- Credit Agreement among Amscan Inc., Kookaburra USA Ltd., Deco Paper
Products, Inc., Trisar, Inc., the Banks Signatory thereto and The Chase
Manhattan Bank N.A., dated as of September 20, 1995
** Exhibit 4(b) -- Amendment No. 1 to Credit Agreement among Amscan Holdings, Inc., Amscan
Inc., Trisar, Inc., the Banks Signatory thereto and The Chase Manhattan
Bank, dated as of November 14, 1996
** Exhibit 4(c) -- Amendment No. 2 to Credit Agreement among Amscan Holdings, Inc., Amscan
Inc., Trisar, Inc., the Banks Signatory thereto and The Chase Manhattan
Bank, dated as of December 11, 1996
** Exhibit 5 -- Opinion of Cummings & Lockwood
* Exhibit 10(a) -- Employment Agreement by and between Amscan Holdings, Inc. and John A.
Svenningsen, dated November 1, 1996
* Exhibit 10(b) -- Employment Agreement by and between the Company and Gerald C.
Rittenberg, dated October 9, 1996
* Exhibit 10(c) -- Stock Agreement among Gerald C. Rittenberg, John Svenningsen and Amscan
Inc., dated October 9, 1996
* Exhibit 10(d) -- Employment Agreement between Amscan Inc. and Gerald C. Rittenberg,
dated November 27, 1991
* Exhibit 10(e) -- Employment Agreement by and between Amscan Inc. or the Company and
William Wilkey, dated as of October 4, 1996
* Exhibit 10(f) -- Employment Agreement between Amscan Inc. and William Wilkey, dated as
of December 29, 1992
* Exhibit 10(g) -- Employment Agreement between Amscan Inc. and James M. Harrison, dated
as of June 11, 1996
** Exhibit 10(h) -- 1996 Stock Option Plan for Key Employees
* Exhibit 10(i) -- Lease between ACP East LLC and Amscan Inc. dated as of December 1,
1995, as amended
* Exhibit 10(j) -- Lease between John Anders Svenningsen and Amscan Inc., dated March 1,
1995, as modified and amended
* Exhibit 10(k) -- Lease between John Anders Svenningsen and Amscan Inc., dated November
9, 1995, as amended
** Exhibit 10(l) -- Form of Tax Indemnification Agreement between Amscan Holdings, Inc. and
John A. Svenningsen, dated as of December , 1996
</TABLE>
II-2
<PAGE> 104
<TABLE>
<C> <S> <C> <C>
* Exhibit 10(m) -- Loan Agreement by and between John A. Svenningsen, Gerald C. Rittenberg
and Kurzman & Eisenberg, LLP, as Escrow Agent, dated October 9, 1996
** Exhibit 10(n) -- The Metlife Capital Corporation Master Lease Purchase Agreement between
Metlife Capital Corporation and Amscan Inc., Deco Paper Products, Inc.,
Kookaburra USA Ltd., and Trisar, Inc., dated November 21, 1995, as
amended.
** Exhibit 10(o) -- Form of Indemnification Agreement between the Company and each of the
Directors
* Exhibit 21 -- Subsidiaries of the Registrant
** Exhibit 23(a) -- Consent of KPMG Peat Marwick LLP
** Exhibit 23(b) -- Consent of Cummings & Lockwood (to be included as part of Exhibit 5)
* Exhibit 24 -- Powers of Attorney
* Exhibit 27 -- Financial Data Schedule
</TABLE>
- ---------------
* Previously filed.
** Filed herewith.
(b) Financial Statement Schedule.
Schedule 2 -- Valuation and Qualifying Accounts
II-3
<PAGE> 105
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this amendment to its Registration Statement to be signed on its
behalf by the undersigned thereunto duly authorized, in the Town of Elmsford,
State of New York, on December 13, 1996.
AMSCAN HOLDINGS, INC.
By /s/ James M. Harrison
------------------------------------
James M. Harrison
Chief Financial Officer
and Assistant Secretary
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the Registration Statement has been signed below by the following persons in
the capacities and on the date indicated.
<TABLE>
<CAPTION>
NAME TITLE
- ------------------------------------- -----------------------
<C> <S> <C>
JOHN A. SVENNINGSEN Chairman of the Board
of Directors and Chief
Executive Officer
(principal executive
officer)
GERALD C. RITTENBERG Director and President
CHRISTINE SVENNINGSEN Director
JAMES M. HARRISON Chief Financial Officer
and Assistant Secretary
(principal accounting
officer)
</TABLE>
I,1
By /s/ James M. Harrison
-----------------------
James M. Harrison
As Attorney-in-Fact
December 13, 1996
<PAGE> 106
SCHEDULE 2
AMSCAN INC. AND AFFILIATES
VALUATION AND QUALIFYING ACCOUNTS
($ IN THOUSANDS)
<TABLE>
<CAPTION>
BEGINNING
ENDINGBALANCE
BALANCE ----------- WRITE-OFFS
-----------
ADDITIONS
--
------------------------------
<C> <S> <C> <C>
Allowance for Doubtful Accounts:
For the year ended:
December 31, 1993................................ $ 258 $1,493 $ 2,339 $ 1,104
December 31, 1994................................ 1,104 1,855 2,676 1,925
December 31, 1995................................ 1,925 1,001 1,581 2,505
</TABLE>
<TABLE>
<CAPTION>
BEGINNING ENDING
BALANCE WRITE-OFFS ADDITIONS BALANCE
--------- ---------- --------- -------
<S> <C> <C> <C> <C>
Inventory Reserves:
For the year ended:
December 31, 1993................................ $ 450 $ 141 $ 300 $ 609
December 31, 1994................................ 609 375 600 834
December 31, 1995................................ 834 406 800 1,228
</TABLE>
S-1
<PAGE> 107
EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION PAGE
-------------- ------------------------------------------------------------------ ----
<S> <C> <C>
** Exhibit 1 -- Form of Underwriting Agreement....................................
** Exhibit 2(a) -- Form of Share Exchange Agreement dated as of December , 1996
among the Company, John A. Svenningsen, Gerald C. Rittenberg and
the following trusts each created by agreement dated as of October
29, 1996: Christina Svenningsen Trust, Jon Svenningsen Trust,
Elisabeth Svenningsen Trust, Melissa Svenningsen Trust, Emily
Svenningsen Trust and Sara Svenningsen Trust......................
* Exhibit 2(b) -- Capital Contribution Agreement between the Company and Messrs.
Allen J. Kaufman, Arthur J. Kaufman and Michael F. Hodges, dated
as of October 9, 1996, as supplemented............................
* Exhibit 3(a) -- Certificate of Incorporation of the Registrant, dated October 3,
1996..............................................................
* Exhibit 3(b) -- By-Laws of the Registrant.........................................
* Exhibit 4(a) -- Credit Agreement among Amscan Inc., Kookaburra USA Ltd., Deco
Paper Products, Inc., Trisar, Inc., the Banks Signatory thereto
and The Chase Manhattan Bank N.A., dated as of September 20,
1995..............................................................
** Exhibit 4(b) -- Amendment No. 1 to Credit Agreement among Amscan Holdings, Inc.,
Amscan Inc., Trisar, Inc., the Banks Signatory thereto and The
Chase Manhattan Bank, dated as of November 14, 1996...............
** Exhibit 4(c) -- Amendment No. 2 to Credit Agreement among Amscan Holdings, Inc.
Amscan Inc., Trisar, Inc., the Banks Signatory thereto and The
Chase Manhattan Bank, dated as of December 11, 1996...............
** Exhibit 5 -- Opinion of Cummings & Lockwood....................................
* Exhibit 10(a) -- Employment Agreement by and between Amscan Holdings, Inc. and John
A. Svenningsen, dated November 1, 1996............................
* Exhibit 10(b) -- Employment Agreement by and between the Company and Gerald C.
Rittenberg, dated October 9, 1996.................................
* Exhibit 10(c) -- Stock Agreement among Gerald C. Rittenberg, John Svenningsen and
Amscan Inc., dated October 9, 1996................................
* Exhibit 10(d) -- Employment Agreement between Amscan Inc. and Gerald C. Rittenberg,
dated November 27, 1991...........................................
* Exhibit 10(e) -- Employment Agreement by and between Amscan Inc. or the Company and
William Wilkey, dated as of October 4, 1996.......................
* Exhibit 10(f) -- Employment Agreement between Amscan Inc. and William Wilkey, dated
as of December 29, 1992...........................................
* Exhibit 10(g) -- Employment Agreement between Amscan Inc. and James M. Harrison,
dated as of June 11, 1996.........................................
** Exhibit 10(h) -- 1996 Stock Option Plan for Key Employees..........................
* Exhibit 10(i) -- Lease between ACP East LLC and Amscan Inc. dated as of December 1,
1995, as amended..................................................
* Exhibit 10(j) -- Lease between John Anders Svenningsen and Amscan Inc., dated March
1, 1995, as modified and amended..................................
* Exhibit 10(k) -- Lease between John Anders Svenningsen and Amscan Inc., dated
November 9, 1995, as amended......................................
</TABLE>
<PAGE> 108
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION PAGE
-------------- ------------------------------------------------------------------ ----
<S> <C> <C>
** Exhibit 10(l) -- Form of Tax Indemnification Agreement between Amscan Holdings Inc.
and John A. Svenningsen, dated as of December , 1996............
* Exhibit 10(m) -- Loan Agreement by and between John A. Svenningsen, Gerald C.
Rittenberg and Kurzman & Eisenberg, LLP, as Escrow Agent, dated
October 9, 1996...................................................
** Exhibit 10(n) -- The Metlife Capital Corporation Master Lease Purchase Agreement
between Metlife Capital Corporation and Amscan Inc., Deco Paper
Products, Inc., Kookaburra USA Ltd., and Trisar, Inc., dated
November 21, 1995, as amended.....................................
** Exhibit 10(o) -- Form of Indemnification Agreement between the Company and each of
the Directors.....................................................
* Exhibit 21 -- Subsidiaries of the Registrant....................................
** Exhibit 23(a) -- Consent of KPMG Peat Marwick LLP..................................
** Exhibit 23(b) -- Consent of Cummings & Lockwood (to be included as part of Exhibit
5)................................................................
* Exhibit 24 -- Powers of Attorney................................................
* Exhibit 27 -- Financial Data Schedule...........................................
</TABLE>
- ---------------
* Previously filed.
** Filed herewith.
(b) Financial Statement Schedule.
Schedule 2 -- Valuation and Qualifying Accounts.
<PAGE> 1
Exhibit 1
AMSCAN HOLDINGS, INC.
COMMON STOCK
(PAR VALUE $0.10 PER SHARE)
---------------------------
UNDERWRITING AGREEMENT
---------------------------
December __, 1996
Goldman, Sachs & Co.,
Alex. Brown & Sons Incorporated,
As representatives of the several Underwriters
named in Schedule I hereto,
c/o Goldman, Sachs & Co.,
85 Broad Street,
New York, New York 10004.
Ladies and Gentlemen:
Amscan Holdings, Inc., a Delaware corporation (the "Company"), proposes,
subject to the terms and conditions stated herein, to issue and sell to the
Underwriters named in Schedule I hereto (the "Underwriters") an aggregate of
5,350,000 shares and, at the election of the Underwriters, up to 802,500
additional shares of Common Stock, par value $0.10 per share ("Stock") of the
Company. The 5,350,000 shares to be sold by the Company are herein called the
"Firm Shares" and the 802,500 additional shares to be sold by the Company are
herein called the "Optional Shares". The Firm Shares and the Optional Shares
that the Underwriters elect to purchase pursuant to Section 2 hereof are herein
collectively called the "Shares".
1. The Company represents and warrants to, and agrees with, each of the
Underwriters that:
(i) A registration statement on Form S-1 (File No. 333-14107) (the
"Initial Registration Statement") in respect of the Shares has been
filed with the Securities and Exchange Commission (the "Commission");
the Initial Registration Statement and any post-effective amendment
thereto, each in the form heretofore delivered to you, and, excluding
exhibits thereto to you for each of the other Underwriters, have been
declared effective by the Commission in such form; other than a
registration statement, if any, increasing the size of the offering (a
"Rule 462(b) Registration Statement"), filed pursuant to Rule 462(b)
under the Securities Act of 1933, as amended (the "Act"), which became
effective upon filing, no other document with respect to the Initial
Registration Statement has heretofore been filed with the Commission;
and no stop order suspending the effectiveness of the Initial
Registration Statement, any post-effective amendment thereto or the
Rule 462(b) Registration Statement, if any, has been issued and no
proceeding for that purpose has been initiated or threatened by the
Commission (any preliminary prospectus included in the Initial
Registration Statement or filed with the Commission pursuant to Rule
424(a) of the rules and
<PAGE> 2
regulations of the Commission under the Act is hereinafter called a
"Preliminary Prospectus"); the various parts of the Initial
Registration Statement and the Rule 462(b) Registration Statement, if
any, including all exhibits thereto and including the information
contained in the form of final prospectus filed with the Commission
pursuant to Rule 424(b) under the Act in accordance with Section 6(a)
hereof and deemed by virtue of Rule 430A under the Act to be part of
the Initial Registration Statement at the time it was declared
effective, each as amended at the time such part of the registration
statement became effective or such part of the Rule 462(b) Registration
Statement, if any, became or hereafter becomes effective, are
hereinafter collectively called the "Registration Statement"; and such
final prospectus, in the form first filed pursuant to Rule 424(b) under
the Act, is hereinafter called the "Prospectus";
(ii) No order preventing or suspending the use of any Preliminary
Prospectus has been issued by the Commission, and each Preliminary
Prospectus, at the time of filing thereof, conformed in all material
respects to the requirements of the Act and the rules and regulations
of the Commission thereunder, and did not contain an untrue statement
of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in the
light of the circumstances under which they were made, not misleading;
provided, however, that this representation and warranty shall not
apply to any statements or omissions made in reliance upon and in
conformity with information furnished in writing to the Company by an
Underwriter through Goldman, Sachs & Co. expressly for use therein;
(iii) The Registration Statement conforms, and the Prospectus and
any further amendments or supplements to the Registration Statement or
the Prospectus will conform, in all material respects to the
requirements of the Act and the rules and regulations of the Commission
thereunder and do not and will not, as of the applicable effective date
as to the Registration Statement and any amendment thereto and as of
the applicable filing date as to the Prospectus and any amendment or
supplement thereto, contain an untrue statement of a material fact or
omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading; provided,
however, that this representation and warranty shall not apply to any
statements or omissions made in reliance upon and in conformity with
information furnished in writing to the Company by an Underwriter
through Goldman, Sachs & Co. expressly for use therein;
(iv) Neither the Company nor any of its subsidiaries has sustained
since the date of the latest audited financial statements included in
the Prospectus any material loss or interference with its business from
fire, explosion, flood or other calamity, whether or not covered by
insurance, or from any labor dispute or court or governmental action,
order or decree, otherwise than as set forth or contemplated in the
Prospectus; and, since the respective dates as of which information is
given in the Registration Statement and the Prospectus, there has not
been any change in the capital stock or long-term debt of the Company
or any of its subsidiaries or any material adverse change, or any
development involving a prospective material adverse change, in or
affecting the general affairs, management, financial position,
stockholders' equity or results of operations of the Company and its
subsidiaries, otherwise than as set forth or contemplated in the
Prospectus;
(v) The Company does not own any real property in fee simple; The
Company's subsidiaries have good and marketable title in fee simple to
all real property and the Company and its subsidiaries have good title
to all personal property owned by them, in each case free and clear of
all liens, encumbrances and defects except such as are described in
-2-
<PAGE> 3
the Prospectus or such as do not materially affect the value of such
property, taken as a whole, and do not interfere with the use made and
proposed to be made of such property, taken as a whole, by the Company
and its subsidiaries; and any real property and buildings held under
lease by the Company and its subsidiaries are held by them under valid,
subsisting and enforceable leases with such exceptions as are not
material and do not interfere with the use made and proposed to be made
of such property and buildings by the Company and its subsidiaries;
(vi) The Company has been duly incorporated and is validly existing
as a corporation in good standing under the laws of Delaware, with
power and authority (corporate and other) to own its properties and
conduct its business as described in the Prospectus, and has been duly
qualified as a foreign corporation for the transaction of business and
is in good standing under the laws of each other jurisdiction in which
it owns or leases properties or conducts any business so as to require
such qualification, or is subject to no material liability or
disability by reason of the failure to be so qualified in any such
jurisdiction; and each subsidiary of the Company has been duly
incorporated and is validly existing as a corporation in good standing
under the laws of its jurisdiction of incorporation and each has been
duly qualified as a foreign corporation for the transaction of business
and is in good standing under the laws of each other jurisdiction in
which it owns or leases properties, or conducts any business so as to
require such qualification, or is subject to no material liability or
disability by reason of failure to be so qualified in any such
jurisdiction;
(vii) The Company has an authorized capitalization as set forth in
the Prospectus, and all of the issued shares of capital stock of the
Company have been duly and validly authorized and issued, are fully
paid and non-assessable and conform to the description of the Stock
contained in the Prospectus; with respect to each of the subsidiaries
of the Company that are 100% owned by the Company as set forth in
Schedule II hereto, all of the issued and outstanding shares of capital
stock of each such subsidiary are fully paid and non-assessable and
(except as otherwise described in the Prospectus) are owned directly or
indirectly by the Company, free and clear of all liens, encumbrances,
equities or claims; with respect to each of the subsidiaries of the
Company that are less than 100% owned by the Company as set forth in
Schedule II hereto, all of the issued shares of capital stock owned by
the Company of each such subsidiary have been duly and validly
authorized and issued, are fully paid and non-assessable and (except as
otherwise described in the Prospectus) are owned directly or indirectly
by the Company, free and clear of all liens, encumbrances, equities or
claims, and the percentage owned by the Company of all of the
outstanding shares of capital stock of each such subsidiary is at least
equal to the percentage shown opposite such subsidiary's name on
Schedule II hereto; the Organization (as defined in the Prospectus) has
been duly and validly consummated in compliance with applicable law;
and there are no holders of the securities of the Company or any of its
subsidiaries having rights to registration thereof (except as otherwise
described in the Prospectus) or pre-emptive rights to purchase capital
stock of the Company;
(viii) The unissued Shares to be issued and sold by the Company to
the Underwriters hereunder have been duly and validly authorized and,
when issued and delivered against payment therefor as provided herein,
will be duly and validly issued and fully paid and non-assessable and
will conform to the description of the Stock contained in the
Prospectus;
(ix) The issue and sale of the Shares and the compliance by the
Company with all of the provisions of: (a) this Agreement, (b) the
Stock Agreement, dated October 9, 1996 (the "Stock Agreement"), among
Gerald C. Rittenberg, John A. Svenningsen and Amscan Inc.,
-3-
<PAGE> 4
(c) the Tax Indemnity Agreement, dated __________, 1996 (the "Tax
Indemnity Agreement"), between the Company and John A. Svenningsen, (d)
the Share Exchange Agreement, dated December __, 1996 (the "Share
Exchange Agreement"), among the Company, John A. Svenningsen, certain
trusts as specified therein and Gerald C. Rittenberg and (e) the
Capital Contribution Agreement, dated as of October 9, 1996 (the
"Capital Contribution Agreement"), between the Company and Allan J.
Kaufman, Arthur J. Kaufman and Michael F. Hodges, including the side
letter with respect thereto dated of even date therewith (collectively,
agreements (b) through (e) (including such side letter) in this
subsection 1(ix), the "Organization Agreements") and the consummation
of the transactions herein and therein contemplated will not conflict
with or result in a breach or violation of any of the terms or
provisions of, or constitute a default under, any indenture, mortgage,
deed of trust, loan agreement or other agreement or instrument to which
the Company or any of its subsidiaries is a party or by which the
Company or any of its subsidiaries is bound or to which any of the
property or assets of the Company or any of its subsidiaries is
subject, which conflict, breach, violation or default may reasonably be
expected to have, individually or in the aggregate, a material adverse
affect on the general affairs, management, financial position,
stockholders' equity or results of operations of the Company and its
subsidiaries, taken as a whole, or in any way, individually or in the
aggregate, impair or delay the consummation of the transactions
contemplated by this Agreement or the offering of the Shares in the
manner contemplated by the Prospectus, nor will such action result in
any violation of the provisions of the Certificate of Incorporation or
By-laws of the Company or any statute or any order, rule or regulation
of any court or governmental agency or body having jurisdiction over
the Company or any of its subsidiaries or any of their properties,
which violation may reasonably be expected to have, individually or in
the aggregate, a material adverse affect on the general affairs,
management, financial position, stockholders' equity or results of
operations of the Company and its subsidiaries, taken as a whole, or in
any way, individually or in the aggregate, impair or delay the
consummation of the transactions contemplated by this Agreement or the
offering of the Shares in the manner contemplated by the Prospectus;
and no consent, approval, authorization, order, registration or
qualification of or with any such court or governmental agency or body
is required for the sale of the Shares or the consummation by the
Company of the transactions contemplated by this Agreement and the
Organization Agreements, except for the registration under the Act of
the Shares and the registration of the Stock under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), each of which
has been made or obtained, and such consents, approvals,
authorizations, registrations or qualifications as may be required
under state securities or Blue Sky laws in connection with the purchase
and distribution of the Shares by the Underwriters;
(x) Neither the Company nor any of its subsidiaries is in violation
of its Certificate of Incorporation or By-laws; neither the Company nor
any of its subsidiaries is in default in the performance or observance
of any obligation, agreement, covenant or condition contained in any
indenture, mortgage, deed of trust, loan agreement, lease or other
agreement or instrument to which it is a party or by which it or any of
its properties may be bound, which default may reasonably be expected
to have, individually or in the aggregate, a material adverse affect on
the general affairs, management, financial position, stockholders'
equity or results of operations of the Company and its subsidiaries,
taken as a whole, or in any way, individually or in the aggregate,
impair or delay the consummation of the transactions contemplated by
this Agreement or the offering of the Shares in the manner contemplated
by the Prospectus;
-4-
<PAGE> 5
(xi) The statements set forth in the Prospectus under the caption
"Description of Capital Stock", insofar as they purport to constitute a
summary of the terms of the Stock, and under the captions "Shares
Eligible For Future Sale", "Organization of the Company", "Certain
Related Transactions" and "Underwriting" (except, with respect to the
statements under the caption "Underwriting", for information furnished
in writing to the Company by the Underwriters through the
representatives expressly for use therein) insofar as they purport to
describe the provisions of the laws and the provisions of documents
referred to therein, are accurate and fairly summarize such provisions
in all materials respects;
(xii) Other than as set forth in the Prospectus, there are no legal
or governmental proceedings pending to which the Company or any of its
subsidiaries is a party or of which any property of the Company or any
of its subsidiaries is the subject which, if determined adversely to
the Company or any of its subsidiaries, could reasonably be expected,
individually or in the aggregate, to have a material adverse effect on
the current or future financial position, stockholders' equity or
results of operations of the Company and its subsidiaries, taken as a
whole; and, to the best of the Company's knowledge, no such proceedings
are threatened or contemplated by governmental authorities or
threatened by others;
(xiii) The Company is not and, after giving effect to the offering
and sale of the Shares, will not be an "investment company" or an
entity "controlled" by an "investment company", as such terms are
defined in the Investment Company Act of 1940, as amended (the
"Investment Company Act");
(xiv) Neither the Company nor any of its affiliates does business
with the government of Cuba or with any person or affiliate located in
Cuba within the meaning of Section 517.075, Florida Statutes;
(xv) Each of the Company and its subsidiaries owns or is licensed to
use all patents, trademarks, service marks, trade names and copyrights
("Intellectual Property") currently used in the conduct of their
business, except for those patents, trademarks, service marks, trade
names or copyrights with respect to which the failure to own or license
same would not have a material adverse affect on the financial
position, stockholders' equity or results of operations of the Company
and its subsidiaries, taken as a whole. To the best knowledge of the
Company and its subsidiaries, none of the activities engaged in by the
Company or its subsidiaries infringe upon or otherwise conflict with
Intellectual Property rights of others, except for any such conflicts
that would not have a material adverse effect on the financial
position, stockholders' equity or results of operations of the Company
and its subsidiaries; and
(xvi) KPMG Peat Marwick LLP, who have certified certain financial
statements of the Company and its subsidiaries, are independent public
accountants as required by the Act and the rules and regulations of the
Commission thereunder.
2. Subject to the terms and conditions herein set forth, (a) the Company
agrees to sell to each of the Underwriters, and each of the Underwriters agrees,
severally and not jointly, to purchase from the Company, at a purchase price per
share of $____________, the number of Firm Shares set forth opposite the name of
such Underwriter in Schedule I hereto and (b) in the event and to the extent
that the Underwriters shall exercise the election to purchase Optional Shares as
provided below, the Company agrees to sell to each of the Underwriters, and each
of the Underwriters agrees, severally and not jointly, to purchase from the
Company, at the purchase price per share set forth in clause (a) of this Section
2, that portion of the number of Optional Shares as to which
-5-
<PAGE> 6
such election shall have been exercised (to be adjusted by you so as to
eliminate fractional shares) determined by multiplying such number of Optional
Shares by a fraction the numerator of which is the maximum number of Optional
Shares which such Underwriter is entitled to purchase as set forth opposite the
name of such Underwriter in Schedule I hereto and the denominator of which is
the maximum number of Optional Shares that all of the Underwriters are entitled
to purchase hereunder.
The Company hereby grants to the Underwriters the right to purchase at
their election up to 802,500 Optional Shares, at the purchase price per share
set forth in the paragraph above, for the sole purpose of covering
over-allotments in the sale of the Firm Shares. Any such election to purchase
Optional Shares may be exercised only by written notice from you to the Company,
given within a period of 30 calendar days after the date of this Agreement and
setting forth the aggregate number of Optional Shares to be purchased and the
date on which such Optional Shares are to be delivered, as determined by you but
in no event earlier than the First Time of Delivery (as defined in Section 5
hereof) or, unless you and the Company otherwise agree in writing, earlier than
two or later than ten business days after the date of such notice.
3. The Company hereby confirms its engagement of Goldman, Sachs & Co. as,
and Goldman, Sachs & Co. hereby confirms its agreement with the Company to
render services as, a "qualified independent underwriter" within the meaning of
Rule 2720(b)(15) of the Rules of Conduct of the National Association of
Securities Dealers, Inc. with respect to the offering and sale of the Shares.
Goldman, Sachs & Co. in its capacity as qualified independent underwriter and
not otherwise, is referred to herein as the "QIU". As compensation for the
services of the QIU hereunder, the Company agrees to pay the QIU $10,000 on the
Closing Date.
4. Upon the authorization by you of the release of the Firm Shares, the
several Underwriters propose to offer the Firm Shares for sale upon the terms
and conditions set forth in the Prospectus.
5. (a) The Shares to be purchased by each Underwriter hereunder, in
definitive form, and in such authorized denominations and registered in such
names as Goldman, Sachs & Co. may request upon at least forty-eight hours' prior
notice to the Company shall be delivered by or on behalf of the Company to
Goldman, Sachs & Co., for the account of such Underwriter, against payment by or
on behalf of such Underwriter of the purchase price therefor in Federal (same
day) funds. The Company will cause the certificates representing the Shares to
be made available for checking and packaging at least twenty-four hours prior to
the Time of Delivery (as defined below) with respect thereto at the office of
Goldman, Sachs & Co., 85 Broad Street, New York, New York 10004 (the "Designated
Office"). The time and date of such delivery and payment shall be, with respect
to the Firm Shares, 9:30 a.m., New York time, on December 23, 1996 or such other
time and date as Goldman, Sachs & Co. and the Company may agree upon in writing,
and, with respect to the Optional Shares, 9:30 a.m., New York time, on the date
specified by Goldman, Sachs & Co. in the written notice given by Goldman, Sachs
& Co. of the Underwriters' election to purchase such Optional Shares, or such
other time and date as Goldman, Sachs & Co. and the Company may agree upon in
writing. Such time and date for delivery of the Firm Shares is herein called the
"First Time of Delivery", such time and date for delivery of the Optional
Shares, if not the First Time of Delivery, is herein called the "Second Time of
Delivery", and each such time and date for delivery is herein called a "Time of
Delivery".
(b) The documents to be delivered at each Time of Delivery by or on behalf
of the parties hereto pursuant to Section 8 hereof, including the cross receipt
for the Shares and any additional documents requested by the Underwriters
pursuant to Section 8(k) hereof, will be delivered at the offices of Sullivan &
Cromwell, 125 Broad Street, New York, New York 10004 (the "Closing Location"),
and the Shares will be delivered at the Designated Office, all at such Time of
Delivery.
-6-
<PAGE> 7
A meeting will be held at the Closing Location at 2:00 p.m., New York City time,
on the New York Business Day next preceding Time of Delivery, at which meeting
the final drafts of the documents to be delivered pursuant to the preceding
sentence will be available for review by the parties hereto. For the purposes of
this Section 5, "New York Business Day" shall mean each Monday, Tuesday,
Wednesday, Thursday and Friday which is not a day on which banking institutions
in New York are generally authorized or obligated by law or executive order to
close.
6. The Company agrees with each of the Underwriters:
(a) To prepare the Prospectus in a form approved by you and to file
such Prospectus pursuant to Rule 424(b) under the Act not later than
the Commission's close of business on the second business day following
the execution and delivery of this Agreement, or, if applicable, such
earlier time as may be required by Rule 430A(a)(3) under the Act and,
if the Company elects to rely upon Rule 462(b), the Company shall file
a Rule 462(b) Registration Statement with the Commission in compliance
with Rule 462(b) by 10:00 p.m., Washington, D.C. time, on the date of
this Agreement, and the Company shall at the time of filing either pay
to the Commission the filing fee for the Rule 462(b) Registration
Statement or give irrevocable instructions for the payment of such fee
pursuant to Rule 111(b) under the Act; to make no further amendment or
any supplement to the Registration Statement or Prospectus prior to the
last Time of Delivery which shall be disapproved by you promptly after
reasonable notice thereof unless, in the reasonable judgment of the
Company, such amendment or supplement is required by law and the
Company receives an opinion from counsel reasonably satisfactory to the
representatives to such effect; to advise you, promptly after it
receives notice thereof, of the time when any amendment to the
Registration Statement has been filed or becomes effective or any
supplement to the Prospectus or any amended Prospectus has been filed
and to furnish you with copies thereof; to advise you, promptly after
it receives notice thereof, of the issuance by the Commission of any
stop order or of any order preventing or suspending the use of any
Preliminary Prospectus or prospectus, of the suspension of the
qualification of the Shares for offering or sale in any jurisdiction,
of the initiation or threatening of any proceeding for any such
purpose, or of any request by the Commission for the amending or
supplementing of the Registration Statement or Prospectus or for
additional information; and, in the event of the issuance of any stop
order or of any order preventing or suspending the use of any
Preliminary Prospectus or prospectus or suspending any such
qualification, promptly to use its best efforts to obtain the
withdrawal of such order;
(b) Promptly from time to time to take such action as you may
reasonably request to qualify the Shares for offering and sale under
the securities laws of such jurisdictions as you may request and to
comply with such laws so as to permit the continuance of sales and
dealings therein in such jurisdictions for as long as may be necessary
to complete the distribution of the Shares, provided that in connection
therewith the Company shall not be required to qualify as a foreign
corporation or to file a general consent to service of process in any
jurisdiction;
(c) Prior to 10:00 a.m., New York City time, on the New York
Business Day next succeeding the date of this Agreement and from time
to time, to furnish the Underwriters with copies of the Prospectus in
New York City in such quantities as you may reasonably request, and, if
the delivery of a prospectus is required at any time prior to the
expiration of nine months after the time of issue of the Prospectus in
connection with the offering or sale of the Shares and if at such time
any events shall have occurred as a result of which the Prospectus as
then amended or supplemented would include an untrue statement of a
-7-
<PAGE> 8
material fact or omit to state any material fact necessary in order to
make the statements therein, in the light of the circumstances under
which they were made when such Prospectus is delivered, not misleading,
or, if for any other reason it shall be necessary during such period to
amend or supplement the Prospectus in order to comply with the Act, to
notify you and upon your request to prepare and furnish without charge
to each Underwriter and to any dealer in securities as many copies as
you may from time to time reasonably request of an amended Prospectus
or a supplement to the Prospectus which will correct such statement or
omission or effect such compliance, and in case any Underwriter is
required to deliver a prospectus in connection with sales of any of the
Shares at any time nine months or more after the time of issue of the
Prospectus, upon your request but at the expense of such Underwriter,
to prepare and deliver to such Underwriter as many copies as you may
request of an amended or supplemented Prospectus complying with Section
10(a)(3) of the Act;
(d) To make generally available to its securityholders as soon as
practicable, but in any event not later than eighteen months after the
effective date of the Registration Statement (as defined in Rule 158(c)
under the Act), an earnings statement of the Company and its
subsidiaries (which need not be audited) complying with Section 11(a)
of the Act and the rules and regulations of the Commission thereunder
(including, at the option of the Company, Rule 158);
(e) During the period beginning from the date hereof and continuing
to and including the date 180 days after the date of the Prospectus,
not to offer, sell, contract to sell or otherwise dispose of, except
for the issuance of an aggregate of $3,000,000 worth of shares of Stock
(based on the initial public offering price set forth on the cover of
the Prospectus) to the Company's Employee Stock Ownership Plan (and
issuances of Stock to employees therefrom) or in the form of stock
bonuses to certain domestic employees and except as otherwise provided
hereunder, any securities of the Company that are substantially similar
to the Shares, including but not limited to any securities that are
exercisable or exchangeable for, that represent the right to receive or
that are convertible into or whose exercise or settlement price is
derivable from the price of Stock or any such substantially similar
securities (other than pursuant to employee stock option plans existing
on, or upon the conversion or exchange of convertible or exchangeable
securities outstanding as of, the date of this Agreement), without your
prior written consent;
(f) To furnish to its stockholders as soon as practicable after the
end of each fiscal year an annual report (including a balance sheet and
statements of income, stockholders' equity and cash flows of the
Company and its consolidated subsidiaries certified by independent
public accountants) and, as soon as practicable after the end of each
of the first three quarters of each fiscal year (beginning with the
fiscal quarter ending after the effective date of the Registration
Statement), consolidated summary financial information of the Company
and its subsidiaries for such quarter in reasonable detail;
(g) During a period of five years from the effective date of the
Registration Statement, to furnish to you copies of all reports or
other communications (financial or other) furnished to stockholders,
and to deliver to you (i) as soon as they are available, copies of any
reports and financial statements furnished to or filed with the
Commission or any national securities exchange on which any class of
securities of the Company is listed; and (ii) such additional
information concerning the business and financial condition of the
Company as you may from time to time reasonably request (such financial
statements to be on a consolidated
-8-
<PAGE> 9
basis to the extent the accounts of the Company and its subsidiaries
are consolidated in reports furnished to its stockholders generally or
to the Commission);
(h) To use the net proceeds received by it from the sale of the
Shares pursuant to this Agreement in the manner specified in the
Prospectus under the caption "Use of Proceeds";
(i) To use its best efforts to list for quotation the Shares on the
Nasdaq Stock Market, Inc. ("NASDAQ"); and
(j) To file with the Commission such reports on Form SR as may be
required by Rule 463 under the Act.
7. The Company covenants and agrees with the several Underwriters that (a)
the Company will pay or cause to be paid the following: (i) the fees,
disbursements and expenses of the Company's counsel and accountants in
connection with the registration of the Shares under the Act and all other
expenses in connection with the preparation, printing and filing of the
Registration Statement, any Preliminary Prospectus and the Prospectus and
amendments and supplements thereto and the mailing and delivering of copies
thereof to the Underwriters and dealers; (ii) the cost of printing or producing
any Agreement among Underwriters, this Agreement, the Blue Sky Memorandum,
closing documents (including any compilations thereof) and any other documents
in connection with the offering, purchase, sale and delivery of the Shares not
exceeding $10,000; (iii) all expenses in connection with the qualification of
the Shares for offering and sale under state securities laws as provided in
Section 6(b) hereof, including the fees and disbursements of counsel for the
Underwriters in connection with such qualification and in connection with the
Blue Sky survey not exceeding $20,000; (iv) all fees and expenses in connection
with listing the Shares on the NASDAQ; (v) the filing fees incident to, and the
fees and disbursements of counsel for the Underwriters in connection with,
securing any required review by the National Association of Securities Dealers,
Inc. of the terms of the sale of the Shares; (vi) the cost of preparing stock
certificates; (vii) the cost and charges of any transfer agent or registrar; and
(viii) all other costs and expenses incident to the performance of its
obligations hereunder which are not otherwise specifically provided for in this
Section . It is understood, however, that, except as provided in this Section ,
and Sections 9 and 13 hereof, the Underwriters will pay all of their own costs
and expenses, including the fees of their counsel, stock transfer taxes on
resale of any of the Shares by them, and any advertising expenses connected with
any offers they may make.
8. The obligations of the Underwriters hereunder, as to the Shares to be
delivered at each Time of Delivery, shall be subject, in their discretion, to
the condition that all representations and warranties and other statements of
the Company herein are, at and as of such Time of Delivery, true and correct,
the condition that the Company shall have performed all of its obligations
hereunder theretofore to be performed, and the following additional conditions:
(a) The Prospectus shall have been filed with the Commission
pursuant to Rule 424(b) within the applicable time period prescribed
for such filing by the rules and regulations under the Act and in
accordance with Section 6(a) hereof; if the Company has elected to rely
upon Rule 462(b), the Rule 462(b) Registration Statement shall have
become effective by 10:00 p.m., Washington, D.C. time, on the date of
this Agreement; no stop order suspending the effectiveness of the
Registration Statement or any part thereof shall have been issued and
no proceeding for that purpose shall have been initiated or threatened
by the Commission; and all requests for additional information on the
part of the Commission shall have been complied with to your reasonable
satisfaction;
-9-
<PAGE> 10
(b) Sullivan & Cromwell, counsel for the Underwriters, shall have
furnished to you such opinion or opinions, dated such Time of Delivery,
with respect to the incorporation of the Company, the Underwriting
Agreement, the validity of the Shares being delivered at such Time of
Delivery, the Registration Statement, the Prospectus and such other
related matters as you may reasonably request, and such counsel shall
have received such papers and information as they may reasonably
request to enable them to pass upon such matters;
(c) Kurzman & Eisenberg, LLP, counsel for the Company, shall have
furnished to you their written opinion (a copy of such opinion in final
draft form being attached as Annex II(a) hereto), dated the date of
such Time of Delivery, in form and substance satisfactory to you, to
the effect that:
(i) Each of Amscan Inc., Am-Source, Inc., Trisar, Inc., JCS
Realty Corp. and SSY Realty Corp. (collectively, the "Domestic
Subsidiaries") has been duly incorporated and is validly existing
as a corporation in good standing under the laws of its
jurisdiction of incorporation; and all of the issued shares of
capital stock of each such subsidiary have been duly and validly
authorized and issued, are fully paid and non-assessable, and
(except for directors' qualifying shares) are owned directly or
indirectly by the Company, free and clear of all liens,
encumbrances, equities or claims (such counsel being entitled to
rely in respect of the opinion in this clause upon opinions of
local counsel and in respect of matters of fact upon certificates
of public officials, officers of the Company and officers of the
Domestic Subsidiaries, provided that such counsel shall state
that he has no reason to believe that both you and he are not
justified in relying upon such opinions and certificates);
(ii) Each of the Domestic Subsidiaries has been duly
qualified as a foreign corporation for the transaction of
business and is in good standing under the laws of each other
jurisdiction in which it owns or leases properties or conducts
any business so as to require such qualification, or is subject
to no material liability or disability by reason of failure to be
so qualified in any such jurisdiction (such counsel being
entitled to rely in respect of the opinion in this clause upon
opinions of local counsel and in respect of matters of fact upon
certificates of public officials, officers of the Company and
officers of the Domestic Subsidiaries, provided that such counsel
shall state that he has no reason to believe that both you and he
are not justified in relying upon such opinions and
certificates);
(iii) All real property and buildings held under lease by the
Company and the Domestic Subsidiaries are held by them under
valid, subsisting and enforceable leases with such exceptions as
are not material and do not interfere with the use made of such
property and buildings by the Company and such subsidiaries (in
giving the opinion in this clause, such counsel may state that he
is relying upon opinions of local counsel, upon opinions of
counsel to the lessors of such property and, in respect of
matters of fact, upon certificates of public officials and
officers of the Company or such subsidiaries, provided that such
counsel shall state that he has no reason to believe that both
you and he are not justified in relying upon such opinions and
certificates);
(iv) To the best of such counsel's knowledge and other than
as set forth in the Prospectus, there are no legal or
governmental proceedings pending to which any of the Domestic
Subsidiaries is a party or of which any of their property is
subject which, if determined adversely to any such Domestic
Subsidiaries, can reasonably be expected to have, individually or
in the aggregate, a material adverse effect on the current or
-10-
<PAGE> 11
future consolidated financial position stockholders' equity or
results of operations of the Company and its subsidiaries; and,
to the best of such counsel's knowledge, no such proceedings are
threatened or contemplated by governmental authorities or
threatened by others;
(v) The issue and sale of the Shares being delivered at
such Time of Delivery to be sold by the Company and the
compliance by the Company with all of the provisions of this
Agreement and the Organization Agreements and the consummation of
the transactions herein and therein contemplated will not
conflict with or result in a breach or violation of any of the
terms or provisions of, or constitute a default under, any
indenture, mortgage, deed of trust, loan agreement or other
agreement or instrument known to such counsel to which any of the
Domestic Subsidiaries is a party or by which any of the Domestic
Subsidiaries is bound or to which any of the property or assets
of any of the Domestic Subsidiaries is subject, which conflict,
breach, violation or default may reasonably be expected to have,
individually or in the aggregate, a material adverse affect on or
affecting the general affairs, management, financial position,
stockholders' equity or results of operations of the Company or
the Domestic Subsidiaries or in any way, individually or in the
aggregate, impair or delay the consummation of the transactions
contemplated by this Agreement or the offering of the Shares in
the manner contemplated by the Prospectus, nor will such action
result in any violation of the provisions of the Certificate of
Incorporation or By-laws of any of the Domestic Subsidiaries or
any statute or any order, rule or regulation known to such
counsel of any court or governmental agency or body having
jurisdiction over any of the Domestic Subsidiaries or any of
their properties, which violation may reasonably be expected to
have, individually or in the aggregate, a material adverse affect
on or affecting the general affairs, management, financial
position, stockholders' equity or results of operations of the
Company or the Domestic Subsidiaries or in any way, individually
or in the aggregate, impair or delay the consummation of the
transactions contemplated by this Agreement or the offering of
the Shares in the manner contemplated by the Prospectus;
(vi) None of the Domestic Subsidiaries is in violation of its
Certificate of Incorporation or By-laws or, to the best of such
counsel's knowledge after reasonable investigation, in default in
the performance or observance of any obligation, agreement,
covenant or condition contained in any indenture, mortgage, deed
of trust, loan agreement, or lease or agreement or other
instrument to which it is a party or by which it or any of its
properties may be bound, which default may reasonably be expected
to have, individually or in the aggregate, a material adverse
affect on or affecting the general affairs, management, financial
position, stockholders' equity or results of operations of the
Company or the Domestic Subsidiaries or in any way, individually
or in the aggregate, impair or delay the consummation of the
transactions contemplated by this Agreement or the offering of
the Shares in the manner contemplated by the Prospectus;
(vii) The statements set forth in the Prospectus under the
caption "Certain Related Transactions" insofar as they purport to
describe the provisions of the laws and the provisions of
documents referred to therein, are accurate and fairly summarize
such provisions in all material respects;
(viii) This Agreement has been duly authorized, executed and
delivered by the Operating Subsidiaries (as defined below) and
duly executed and delivered by John Svenningsen;
-11-
<PAGE> 12
(ix) The Stock Agreement has been duly authorized, executed
and delivered by Amscan Inc. and has been duly executed and
delivered by John A. Svenningsen, and such agreement constitutes
a valid and legally binding agreement of each of Amscan Inc. and
John A. Svenningsen enforceable in accordance with its terms,
subject to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and similar laws of general
applicability relating to or affecting creditors' rights and to
general equity principles;
(x) Although they do not assume any responsibility for the
accuracy, completeness or fairness of the statements contained in
the Registration Statement or the Prospectus, except for those
referred to in the opinion in subsection (vii) of this Section
8(c), they have no reason to believe that, as of its effective
date, the Registration Statement or any further amendment thereto
made by the Company prior to such Time of Delivery (other than
the financial statements and related schedules therein, as to
which such counsel need express no opinion) contained an untrue
statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading or that, as of its date, the Prospectus or
any further amendment or supplement thereto made by the Company
prior to such Time of Delivery (other than the financial
statements and related schedules therein, as to which such
counsel need express no opinion) contained an untrue statement of
a material fact or omitted to state a material fact necessary to
make the statements therein, in the light of the circumstances
under which they were made, not misleading or that, as of such
Time of Delivery, either the Registration Statement or the
Prospectus or any further amendment or supplement thereto made by
the Company prior to such Time of Delivery (other than the
financial statements and related schedules therein, as to which
such counsel need express no opinion) contains an untrue
statement of a material fact or omits to state a material fact
necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading;
(d) Cummings & Lockwood, counsel for the Company, shall have
furnished to you their written opinion (a copy of such opinion in final
draft form (which final draft form shall be in form and substance
satisfactory to you) being attached as Annex II(b) hereto), dated the
date of such Time of Delivery to the effect that:
(i) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the
state of Delaware, with corporate power and authority to own its
properties and conduct its business as described in the
Prospectus;
(ii) The Company has an authorized capitalization as set
forth in the Prospectus, and all of the issued shares of capital
stock of the Company (including the Shares being delivered at
such Time of Delivery) have been duly and validly authorized and
issued and are fully paid and non-assessable; and the Shares
conform to the description of the Stock contained in the
Prospectus;
(iii) The Company has been duly qualified as a foreign
corporation for the transaction of business and is in good
standing under the laws of each other jurisdiction in which it
owns or leases properties or conducts any business so as to
require such qualification, or cannot reasonably be expected to
be subject to any material liability or disability by reason of
failure to be so qualified in any such jurisdiction (such counsel
being entitled to rely in respect of the opinion in this clause
upon opinions of local counsel, certificates and official written
statements of public officials and in respect of matters of fact
upon
-12-
<PAGE> 13
certificates of officers of the Company, provided that such
counsel shall state that they have no reason to believe that both
you and they are not justified in relying upon such opinions,
certificates and official written statements);
(iv) This Agreement has been duly authorized, executed and
delivered by the Company;
(v) The Organization Agreements (other than the Stock
Agreement, as to which such counsel expresses no opinion)) have
been duly authorized, executed and delivered by the Company, and
such agreements constitute valid and legally binding agreements
of the Company enforceable against the Company in accordance with
their terms, subject to bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium and similar laws of general
applicability relating to or affecting creditors' rights and to
general equity principles;
(vi) The statements set forth in the Prospectus under the
caption "Description of Capital Stock", insofar as they purport
to constitute a summary of the terms of the Stock, and under the
captions "Shares Eligible for Future Sale", "Organization of the
Company", and "Underwriting" (except, with respect to the
statements under the caption "Underwriting", for information
furnished in writing to the Company by the Underwriters through
the representatives expressly for use therein) insofar as they
purport to describe the provisions of the laws and provisions of
documents referred to therein, are accurate and fairly summarize
such provisions in all material respects;
(vii) To the best of such counsel's knowledge and other than
as set forth in the Prospectus, there are no legal or
governmental proceedings pending to which the Company is a party
or of which any property of the Company is the subject which, if
determined adversely to the Company, can reasonably be expected
to have, individually or in the aggregate, a material adverse
effect on the current or future consolidated financial position,
stockholders' equity or results of operations of the Company and
its subsidiaries, taken as a whole; and, to the best of such
counsel's knowledge, no such proceedings are threatened or
contemplated by governmental authorities or threatened by others;
(viii) The issue and sale of the Shares being delivered at
such Time of Delivery to be sold by the Company and the
compliance by the Company with all of the provisions of this
Agreement and the Organization Agreements (other than the Stock
Agreement, as to which such counsel expresses no opinion) and the
consummation of the transactions herein and therein contemplated
will not conflict with or result in a breach or violation of any
of the terms or provisions of, or constitute a default under, any
indenture, mortgage, deed of trust, loan agreement or other
agreement or instrument known to such counsel to which the
Company is a party or by which it is bound or to which any of the
property or assets of the Company is subject, which conflict,
breach, violation or default may reasonably be expected to have,
individually or in the aggregate, a material adverse affect on
the financial position, stockholders' equity or results of
operations of the Company and its subsidiaries, taken as a whole,
or in any way, individually or in the aggregate, impair or delay
the consummation of the transactions contemplated by this
Agreement or the offering of the Shares in the manner
contemplated by the Prospectus, nor will such action result in
any violation of the provisions of the Certificate of
Incorporation or By-laws of the Company or any statute (other
than State securities or Blue Sky laws, as to which such counsel
expresses no
-13-
<PAGE> 14
opinion) or any order, rule or regulation known to such counsel
of any court or governmental agency or body having jurisdiction
over the Company or any of its properties, which violation may
reasonably be expected to have, individually or in the aggregate,
a material adverse affect on the financial position,
stockholders' equity or results of operations of the Company and
its subsidiaries, taken as a whole, or in any way, individually
or in the aggregate, impair or delay the consummation of the
transactions contemplated by this Agreement or the offering of
the Shares in the manner contemplated by the Prospectus;
(ix) No consent, approval, authorization, order,
registration or qualification of or with any such court or
governmental agency or body is required for the issue and sale of
the Shares or the consummation by the Company of the transactions
contemplated by this Agreement and the Organization Agreements
(other than the Stock Agreement, as to which such counsel
expresses no opinion), except for the filing of the Certificate
of Incorporation of the Company with the State of Delaware, the
registration of the offer and sale of the Shares under the Act
and the registration of the Stock under the Exchange Act, each of
which has been made or obtained, and such consents, approvals,
authorizations, registrations or qualifications as may be
required under state securities or Blue Sky laws in connection
with the purchase and distribution of the Shares by the
Underwriters;
(x) The Company is not in violation of its Certificate of
Incorporation or By-laws;
(xi) The Company is not an "investment company" or an entity
"controlled" by an "investment company", as such terms are
defined in the Investment Company Act;
(xii) The Registration Statement and the Prospectus and any
further amendments and supplements thereto made by the Company
prior to such Time of Delivery (other than the financial
statements and related schedules therein, as to which such
counsel need express no opinion) comply as to form in all
material respects with the requirements of the Act and the rules
and regulations thereunder; although they do not assume any
responsibility for the accuracy, completeness or fairness of the
statements contained in the Registration Statement or the
Prospectus, except as and to the extent expressly set forth in
the opinion in subsection (vi) of this Section 8(d), they have no
reason to believe that, as of its effective date, the
Registration Statement or any further amendment thereto made by
the Company prior to such Time of Delivery (other than the
financial statements and related schedules therein, as to which
such counsel need express no opinion) contained an untrue
statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading or that, as of its date, the Prospectus or
any further amendment or supplement thereto made by the Company
prior to such Time of Delivery (other than the financial
statements and related schedules therein, as to which such
counsel need express no opinion) contained an untrue statement of
a material fact or omitted to state a material fact necessary to
make the statements therein, in the light of the circumstances
under which they were made, not misleading or that, as of such
Time of Delivery, either the Registration Statement or the
Prospectus or any further amendment or supplement thereto made by
the Company prior to such Time of Delivery (other than the
financial statements and related schedules therein, as to which
such counsel need express no opinion) contains an untrue
statement of a material fact or omits to state a material fact
necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; and
they do not know of any amendment
-14-
<PAGE> 15
to the Registration Statement required to be filed or of any
contracts or other documents of a character required to be filed
as an exhibit to the Registration Statement or required to be
described in the Registration Statement or the Prospectus which
are not filed or described as required;
(e) On the date of the Prospectus at a time prior to the execution
of this Agreement, at 9:30 a.m., New York City time, on the effective
date of any post-effective amendment to the Registration Statement
filed subsequent to the date of this Agreement and also at each Time of
Delivery, KPMG Peat Marwick LLP shall have furnished to you a letter or
letters, dated the respective dates of delivery thereof, in form and
substance satisfactory to you, to the effect set forth in Annex I
hereto (the executed copy of the letter delivered by KPMG Peat Marwick
LLP prior to the execution of this Agreement is attached hereto as
Annex I(a) and a draft of the form of letter to be delivered on the
effective date of any post-effective amendment to the Registration
Statement and as of each Time of Delivery are attached hereto as Annex
I(b));
(f)(i) Neither the Company nor any of its subsidiaries shall have
sustained since the date of the latest audited financial statements
included in the Prospectus any loss or interference with its business
from fire, explosion, flood or other calamity, whether or not covered
by insurance, or from any labor dispute or court or governmental
action, order or decree, otherwise than as set forth or contemplated in
the Prospectus, and (ii) since the respective dates as of which
information is given in the Prospectus there shall not have been any
change in the capital stock or long-term debt of the Company or any of
its subsidiaries or any change, or any development involving a
prospective change, in or affecting the general affairs, management,
financial position, stockholders' equity or results of operations of
the Company and its subsidiaries, otherwise than as set forth or
contemplated in the Prospectus, the effect of which, in any such case
described in Clause (i) or (ii), is in the judgment of the
Representatives so material and adverse as to make it impracticable or
inadvisable to proceed with the public offering or the delivery of the
Shares being delivered at such Time of Delivery on the terms and in the
manner contemplated in the Prospectus;
(g) On or after the date hereof (i) no downgrading shall have
occurred in the rating accorded the Company's debt securities, if any,
by any "nationally recognized statistical rating organization", as that
term is defined by the Commission for purposes of Rule 436(g)(2) under
the Act, and (ii) no such organization shall have publicly announced
that it has under surveillance or review, with possible negative
implications, its rating of any of the Company's debt securities, if
any;
(h) On or after the date hereof there shall not have occurred any of
the following: (i) a suspension or material limitation in trading in
securities generally on the New York Stock Exchange or on NASDAQ; (ii)
a suspension or material limitation in trading in the Company's
securities on NASDAQ; (iii) a general moratorium on commercial banking
activities declared by either Federal or New York State authorities; or
(iv) the outbreak or escalation of hostilities involving the United
States or the declaration by the United States of a national emergency
or war, if the effect of any such event specified in this Clause (iv)
in the judgment of the Representatives makes it impracticable or
inadvisable to proceed with the public offering or the delivery of the
Shares being delivered at such Time of Delivery on the terms and in the
manner contemplated in the Prospectus;
(i) The Shares at such Time of Delivery shall have been duly listed
for quotation on NASDAQ;
-15-
<PAGE> 16
(j) The Company has obtained and delivered to the Underwriters an
executed copy of an agreement from each of John A. Svenningsen, the
Christine Svenningsen Trust, the Jon Svenningsen Trust, the Elisabeth
Svenningsen Trust, the Melissa Svenningsen Trust, the Emily Svenningsen
Trust and the Sara Svenningsen Trust, substantially to the effect that
during the period beginning from the date hereof and continuing to and
including the date 180 days after the date of the Prospectus, he shall
not offer, sell, contract to sell, or otherwise dispose of any
securities of the Company including but not limited to any securities
that are exercisable or exchangeable for, that represent the right to
receive or that are convertible into or whose exercise or settlement
price is derivable from the price of Stock or any substantially similar
securities without your prior written consent;
(k) The Company shall have furnished or caused to be furnished to
you at such Time of Delivery certificates of officers of the Company,
reasonably satisfactory to you as to the accuracy of the
representations and warranties of the Company herein at and as of such
Time of Delivery, as to the performance by the Company of all of its
respective obligations hereunder to be performed at or prior to such
Time of Delivery, and as to such other matters as you may reasonably
request, and the Company shall have furnished or caused to be furnished
certificates as to the matters set forth in subsections (a) and (f) of
this Section ;
(l) The Company shall have obtained (i) all appropriate waivers of
the covenants under the Credit Agreement, dated as of September 20,
1995, among Amscan Inc., Kookaburra USA Ltd., Deco Paper Products, Inc.
and Trisar, Inc., on the one hand, and the Banks signatory thereto and
The Chase Manhattan Bank, as Agent, on the other hand, (ii) all
appropriate releases of pledged shares pursuant to the Pledge
Agreement, dated September 20, 1995, between John A. Svenningsen, as
Pledgor, and The Chase Manhattan Bank, as Agent, and (iii) all
appropriate releases of pledged shares pursuant to the Stock Pledge
Agreement, dated November 13, 1993, among John A. Svenningsen, E. Allan
Shook, L. Randall Harris and Higham, McConnell & Dunning;
(m) The Company shall have complied with the provisions of Section
6(c) hereof with respect to the furnishing of prospectuses on the New
York Business Day next succeeding the date of this Agreement; and
(n) The Organization (as defined in the Prospectus) shall have been
duly and validly consummated in accordance with applicable law; the
Company shall have entered into (i) the Tax Indemnity Agreement, (ii)
an employment agreement between the Company and John A. Svenningsen,
(iii) an employment agreement between the Company and Gerald C.
Rittenberg and (iv) an employment agreement between the Company and
William Wilkey; and Amscan Inc. shall have entered into an employment
agreement between it and James M. Harrison, each such agreement with
terms substantially as described in the Prospectus.
9. (a) The Company, each of the subsidiaries of the Company listed on the
signature pages hereof (the "Operating Subsidiaries"), and John A. Svenningsen
(the "Principal Stockholder"), jointly and severally, will indemnify and hold
harmless each Underwriter against any losses, claims, damages or liabilities,
joint or several, to which such Underwriter may become subject, under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon an untrue statement or alleged
untrue statement of a material fact contained in any Preliminary Prospectus, the
Registration Statement or the Prospectus, or any amendment or supplement
thereto, or arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, and will reimburse each Underwriter for
any legal or other
-16-
<PAGE> 17
expenses reasonably incurred by such Underwriter in connection with
investigating or defending any such action or claim as such expenses are
incurred; provided, however, that the Company, the Operating Subsidiaries and
the Principal Stockholder shall not be liable in any such case to the extent
that any such loss, claim, damage or liability arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged omission
made in any Preliminary Prospectus, the Registration Statement or the Prospectus
or any such amendment or supplement in reliance upon and in conformity with
written information furnished to the Company by any Underwriter through Goldman,
Sachs & Co. expressly for use therein.
(b) Each Underwriter will indemnify and hold harmless the Company, the
Operating Subsidiaries and the Principal Stockholder against any losses, claims,
damages or liabilities to which the Company, the Operating Subsidiaries or the
Principal Stockholder may become subject, under the Act or otherwise, insofar as
such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon an untrue statement or alleged untrue statement
of a material fact contained in any Preliminary Prospectus, the Registration
Statement or the Prospectus, or any amendment or supplement thereto, or arise
out of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, in each case to the extent, but only to the extent, that
such untrue statement or alleged untrue statement or omission or alleged
omission was made in any Preliminary Prospectus, the Registration Statement or
the Prospectus or any such amendment or supplement in reliance upon and in
conformity with written information furnished to the Company by such Underwriter
through Goldman, Sachs & Co. expressly for use therein; and will reimburse the
Company, the Operating Subsidiaries and the Principal Stockholder for any legal
or other expenses reasonably incurred by the Company, the Operating Subsidiaries
and the Principal Stockholder in connection with investigating or defending any
such action or claim as such expenses are incurred.
(c) Promptly after receipt by an indemnified party under subsection (a) or
(b) above of notice of the commencement of any action, such indemnified party
shall, if a claim in respect thereof is to be made against the indemnifying
party under such subsection, notify the indemnifying party in writing of the
commencement thereof; but the omission so to notify the indemnifying party shall
not relieve it from any liability which it may have to any indemnified party
otherwise than under such subsection. In case any such action shall be brought
against any indemnified party and it shall notify the indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to participate
therein and, to the extent that it shall wish, jointly with any other
indemnifying party similarly notified, to assume the defense thereof, with
counsel satisfactory to such indemnified party (who shall not, except with the
consent of the indemnified party, be counsel to the indemnifying party), and,
after notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying party shall not be
liable to such indemnified party under such subsection for any legal expenses of
other counsel or any other expenses, in each case subsequently incurred by such
indemnified party, in connection with the defense thereof other than reasonable
out-of-pocket costs of investigation. No indemnifying party shall, without the
written consent of the indemnified party, effect the settlement or compromise
of, or consent to the entry of any judgment with respect to, any pending or
threatened action or claim in respect of which indemnification or contribution
may be sought hereunder (whether or not the indemnified party is an actual or
potential party to such action or claim) unless such settlement, compromise or
judgment (i) includes an unconditional release of the indemnified party from all
liability arising out of such action or claim and (ii) does not include a
statement as to or an admission of fault, culpability or a failure to act, by or
on behalf of any indemnified party.
-17-
<PAGE> 18
(d) If the indemnification provided for in this Section 9 is unavailable to
or insufficient to hold harmless an indemnified party under subsection (a) or
(b) above in respect of any losses, claims, damages or liabilities (or actions
in respect thereof) referred to therein, then each indemnifying party shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages or liabilities (or actions in respect thereof)
in such proportion as is appropriate to reflect the relative benefits received
by the Company, the Operating Subsidiaries and the Principal Stockholder on the
one hand and the Underwriters on the other from the offering of the Shares. If,
however, the allocation provided by the immediately preceding sentence is not
permitted by applicable law or if the indemnified party failed to give the
notice required under subsection (c) above, then each indemnifying party shall
contribute to such amount paid or payable by such indemnified party in such
proportion as is appropriate to reflect not only such relative benefits but also
the relative fault of the Company, the Operating Subsidiaries and the Principal
Stockholder on the one hand and the Underwriters on the other in connection with
the statements or omissions which resulted in such losses, claims, damages or
liabilities (or actions in respect thereof), as well as any other relevant
equitable considerations. The relative benefits received by the Company, the
Operating Subsidiaries and the Principal Stockholder on the one hand and the
Underwriters on the other shall be deemed to be in the same proportion as the
total net proceeds from the offering (before deducting expenses) received by the
Company bear to the total underwriting discounts and commissions received by the
Underwriters, in each case as set forth in the table on the cover page of the
Prospectus. The relative fault shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company, the Operating Subsidiaries or the Principal Stockholder
on the one hand or the Underwriters on the other and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission. The Company, the Operating Subsidiaries, the
Principal Stockholder and the Underwriters agree that it would not be just and
equitable if contributions pursuant to this subsection (d) were determined by
pro rata allocation (even if the Underwriters were treated as one entity for
such purpose) or by any other method of allocation which does not take account
of the equitable considerations referred to above in this subsection (d). The
amount paid or payable by an indemnified party as a result of the losses,
claims, damages or liabilities (or actions in respect thereof) referred to above
in this subsection (d) shall be deemed to include any legal or other
out-of-pocket expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this subsection (d), no Underwriter shall be
required to contribute any amount in excess of the amount by which the total
price at which the Shares underwritten by it and distributed to the public were
offered to the public exceeds the amount of any damages which such Underwriter
has otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations in this subsection (d) to
contribute are several in proportion to their respective underwriting
obligations and not joint.
(e) The obligations of the Company, the Operating Subsidiaries and the
Principal Stockholder under this Section 9 shall be in addition to any liability
which the Company, the respective Operating Subsidiaries and the Principal
Stockholder may otherwise have and shall extend, upon the same terms and
conditions, to each person, if any, who controls any Underwriter within the
meaning of the Act; and the obligations of the Underwriters under this Section 9
shall be in addition to any liability which the respective Underwriters may
otherwise have and shall extend, upon the
-18-
<PAGE> 19
same terms and conditions, to each officer and director of the Company and to
each person, if any, who controls the Company or any of the Operating
Subsidiaries within the meaning of the Act.
(f) Notwithstanding the foregoing, and without limiting in any way the
ability of any Underwriter to commence an action or proceeding against the
Principal Stockholder on a joint and several basis, the Principal Stockholder
shall not be required to make payment of any amount pursuant to subsection (a),
(c) or (d) above to any Underwriter with respect to any loss, claim, damage,
liability or expense (each such circumstance or event a "Loss") which falls
within the scope of subsection (a), (c) or (d) above unless and until the
Company and the Operating Subsidiaries have failed to pay any amount owed to
such Underwriter under subsection (a), (c) or (d) above with respect to a Loss
within 20 business days after the earlier to occur of (i) a demand by the
Underwriters for payment by the Company and the Operating Subsidiaries of such
amount, which amount the Company and the Operating Subsidiaries agree, whether
by settlement or otherwise, is owed to such Underwriter, or (ii) entry of a
final judgment by a court of competent jurisdiction, from which the time period
for filing an appeal has expired, against the Company or any of the Operating
Subsidiaries providing for payment to the Underwriters of such amount; provided,
however, that after any Insolvency Event (as hereinafter defined) the Principal
Stockholder shall be liable in accordance with subsections (a), (c) and (d)
above without regard to the requirements of clauses (i) and (ii) of this
paragraph; and in no event shall the aggregate liability of the Principal
Stockholder under Sections 9 and 10 exceed $___________. For purposes of this
subsection (f), an "Insolvency Event" shall have occurred when the Company or
any of the Operating Subsidiaries has commenced a voluntary proceeding, under
any applicable Federal or state bankruptcy, insolvency, reorganization or other
similar law, or other proceeding to be adjudicated a bankrupt or insolvent, or
otherwise consented to the entry of a decree or order for relief in respect of
the Company or any of the Operating Subsidiaries in any involuntary proceeding
or to the commencement of any similar proceeding against it, or had entered
against it any decree or order for relief in any such involuntary proceeding or
adjudging the Company or any of the Operating Subsidiaries a bankrupt or
insolvent or appointing a custodian, receiver or similar official of the Company
or any of the Operating Subsidiaries, or of any substantial part of its property
and, with respect to any involuntary order or decree, such order or decree
remains unstayed and in effect for a period of 20 business days, or had any such
party appointed or take possession thereof, or made any assignment for the
benefit of creditors, or taken any corporate action to authorize any of the
foregoing actions.
10. (a) The Company, the Operating Subsidiaries and the Principal
Stockholder, jointly and severally, will indemnify and hold harmless Goldman,
Sachs & Co., in its capacity as QIU, against any losses, claims, damages or
liabilities, joint or several, to which the QIU may become subject, under the
Act or otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon an untrue statement
or alleged untrue statement of a material fact contained in any Preliminary
Prospectus, the Registration Statement or the Prospectus, or any amendment or
supplement thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and will reimburse the
QIU for any legal or other expenses reasonably incurred by the QIU in connection
with investigating or defending any such action or claim as such expressed are
incurred.
(b) Promptly after receipt by the QIU under subsection (a) above of notice
of the commencement of any action, the QIU shall, if a claim in respect thereof
is to be made against an indemnifying party under such subsection, notify such
indemnifying party in writing of the commencement thereof; but the omission so
to notify such indemnifying party shall not relieve it from any liability which
it may have to the QIU otherwise than under such subsection. In case any
-19-
<PAGE> 20
such action shall be brought against the QIU and it shall notify the
indemnifying party of the commencement thereof, the indemnifying party shall be
entitled to participate therein and, to the extent it shall wish, jointly with
any other indemnifying party similarly notified, to assume the defense thereof,
with counsel satisfactory to the QIU (who shall not, except with the consent of
the QIU, be counsel to the indemnifying party), and, after notice from the
indemnifying party to the QIU of its election so to assume the defense thereof,
the indemnifying party shall not be liable to the QIU under such subsection for
any legal expenses of other counsel or any other expenses, in each case
subsequently incurred by the QIU, in connection with the defense thereof other
than reasonable costs of investigation. No indemnifying party shall, without the
written consent of the QIU, effect the settlement or compromise of, or consent
to the entry of any judgment with respect to, any pending or threatened action
or claim in respect of which indemnification or contribution may be sought
hereunder (whether or not the QIU is an actual or potential party to such action
or claim) unless such settlement, compromise or judgment (i) includes an
unconditional release of the QIU from all liability arising out of such action
or claim and (ii) does not include a statement as to or an admission of fault,
culpability or a failure to act, by or on behalf of QIU.
(c) If the indemnification provided for in this Section 10 is unavailable
to or insufficient to hold harmless Goldman, Sachs & Co., in its capacity as
QIU, under subsection (a) above in respect of any losses, claims, damages or
liabilities (or actions in respect thereof) referred to therein, then the
Company, the Operating Subsidiaries and the Principal Stockholder shall
contribute to the amount paid or payable by the QIU as a result of such losses,
claims, damages or liabilities (or actions in respect thereof) in such
proportion as is appropriate to reflect the relative benefits received by the
Company, the Operating Subsidiaries and the Principal Stockholder on the one
hand and the QIU on the other from the offering of the Shares. If, however, the
allocation provided by the immediately preceding sentence is not permitted by
applicable law or if the QIU failed to give the notice required under subsection
(b) above, then the Company, the Operating Subsidiaries and the Principal
Stockholder shall contribute to such amount paid or payable by the QIU in such
proportion as is appropriate to reflect not only such relative benefits but also
the relative fault of the Company, the Operating Subsidiaries and the Principal
Stockholder on the one hand and the QIU on the other in connection with the
statements or omissions which resulted in such losses, claims, damages or
liabilities (or actions in respect thereof), as well as any other relevant
equitable considerations. The relative benefits received by the Company, the
Operating Subsidiaries and the Principal Stockholder on the one hand and the QIU
on the other shall be deemed to be in the same proportion as the total net
proceeds from the offering (before deducting expenses) received by the Company,
as set forth in the table on the cover page of the Prospectus, bear to the fee
payable to the QIU pursuant to Section 3 hereof. The relative fault shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact related to information supplied by the Company, the Operating
Subsidiaries or the Principal Stockholder on the one hand or the QIU on the
other and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The Company, the
Operating Subsidiaries, the Principal Stockholder and the QIU agree that it
would not be just and equitable if contributions pursuant to this subsection (c)
were determined by pro rata allocation or by any other method of allocation
which does not take account of the equitable considerations referred to above in
this subsection (c). The amount paid or payable by the QIU as a result of the
losses, claims, damages or liabilities (or actions in respect thereof) referred
to above in this subsection (c) shall be deemed to include any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. No person guilty of
fraudulent misrepresentation (within the
-20-
<PAGE> 21
meaning of Section 11(f) of the Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation.
(d) The obligations of the Company, the Operating Subsidiaries and the
Principal Stockholder under this Section 10 shall be in addition to any
liability which the Company, the Operating Subsidiaries or the Principal
Stockholder may otherwise have and shall extend, upon the same terms and
conditions, to each person, if any, who controls the QIU within the meaning of
the Act.
(e) Notwithstanding the foregoing, and without limiting in any way the
ability of the QIU to commence an action or proceeding against the Principal
Stockholder on a joint and several basis, the Principal Stockholder shall not be
required to make payment of any amount pursuant to subsection (a), (b) or (c)
above to the QIU with respect to any loss, claim, damage, liability or expense
(each such circumstance or event a "Loss") which falls within the scope of
subsection (a), (b) or (c) above unless and until the Company and the Operating
Subsidiaries have failed to pay any amount owed to the QIU under subsection (a),
(b) or (c) above with respect to a Loss within 20 business days after the
earlier to occur of (i) a demand by the QIU for payment by the Company and the
Operating Subsidiaries of such amount, which amount the Company and the
Operating Subsidiaries agree, whether by settlement or otherwise, is owed to the
QIU, or (ii) entry of a final judgment by a court of competent jurisdiction,
from which the time period for filing an appeal has expired, against the Company
or any of the Operating Subsidiaries providing for payment to the QIU of such
amount; provided, however, that after any Insolvency Event the Principal
Stockholder shall be liable in accordance with subsections (a), (b) or (c) above
without regard to the requirements of clauses (i) and (ii) of this paragraph;
and in no event shall the aggregate liability of the Principal Stockholder under
Sections 9 and 10 exceed $___________.
11. (a) If any Underwriter shall default in its obligation to purchase the
Shares which it has agreed to purchase hereunder at a Time of Delivery, you may
in your discretion arrange for you or another party or other parties to purchase
such Shares on the terms contained herein. If within thirty-six hours after such
default by any Underwriter you do not arrange for the purchase of such Shares,
then the Company shall be entitled to a further period of thirty-six hours
within which to procure another party or other parties satisfactory to you to
purchase such Shares on such terms. In the event that, within the respective
prescribed periods, you notify the Company that you have so arranged for the
purchase of such Shares, or the Company notifies you that it has so arranged for
the purchase of such Shares, you or the Company shall have the right to postpone
a Time of Delivery for a period of not more than seven days, in order to effect
whatever changes may thereby be made necessary in the Registration Statement or
the Prospectus, or in any other documents or arrangements, and the Company
agrees to file promptly any amendments to the Registration Statement or the
Prospectus which in your opinion may thereby be made necessary. The term
"Underwriter" as used in this Agreement shall include any person substituted
under this Section with like effect as if such person had originally been a
party to this Agreement with respect to such Shares.
(b) If, after giving effect to any arrangements for the purchase of the
Shares of a defaulting Underwriter or Underwriters by you and the Company as
provided in subsection (a) above, the aggregate number of such Shares which
remains unpurchased does not exceed one-eleventh of the aggregate number of all
the Shares to be purchased at such Time of Delivery, then the Company shall have
the right to require each non-defaulting Underwriter to purchase the number of
Shares which such Underwriter agreed to purchase hereunder at such Time of
Delivery and, in addition, to require each non-defaulting Underwriter to
purchase its pro rata share (based on the number of Shares which such
Underwriter agreed to purchase hereunder) of the Shares of such defaulting
-21-
<PAGE> 22
Underwriter or Underwriters for which such arrangements have not been made; but
nothing herein shall relieve a defaulting Underwriter from liability for its
default.
(c) If, after giving effect to any arrangements for the purchase of the
Shares of a defaulting Underwriter or Underwriters by you and the Company as
provided in subsection (a) above, the aggregate number of such Shares which
remains unpurchased exceeds one-eleventh of the aggregate number of all of the
Shares to be purchased at such Time of Delivery, or if the Company shall not
exercise the right described in subsection (b) above to require non-defaulting
Underwriters to purchase Shares of a defaulting Underwriter or Underwriters,
then this Agreement (or, with respect to the Second Time of Delivery, the
obligations of the Underwriters to purchase and of the Company to sell the
Optional Shares) shall thereupon terminate, without liability on the part of any
non-defaulting Underwriter or the Company, except for (i) the expenses to be
borne by the Company and the Underwriters as provided in Section 7 hereof and
(ii) the indemnity and contribution agreements of the Company, the Operating
Subsidiaries, the Principal Stockholder and the Underwriters in Sections 9 and
10 hereof; but nothing herein shall relieve a defaulting Underwriter from
liability for its default.
12. The respective indemnities, agreements, representations, warranties and
other statements of the Company, the Operating Subsidiaries, the Principal
Stockholder and the several Underwriters, as set forth in this Agreement or made
by or on behalf of them, respectively, pursuant to this Agreement, shall remain
in full force and effect, regardless of any investigation (or any statement as
to the results thereof) made by or on behalf of any Underwriter or any
controlling person of any Underwriter, or the Company, the Operating
Subsidiaries, the Principal Stockholder or any officer or director or
controlling person of the Company, the Operating Subsidiaries or the Principal
Stockholder, and shall survive delivery of and payment for the Shares.
13. If this Agreement shall be terminated pursuant to Section 11 hereof,
neither the Company, the Operating Subsidiaries nor the Principal Stockholder
shall then be under any liability to any Underwriter except as provided in
Sections 7, 9 and 10 hereof; but, if for any other reason Shares are not
delivered by or on behalf of the Company as provided herein, the Company will
reimburse the Underwriters through you for all out-of-pocket expenses approved
in writing by you, including fees and disbursements of counsel, reasonably
incurred by the Underwriters in making preparations for the purchase, sale and
delivery of the Shares not so delivered, but the Company, the Operating
Subsidiaries and the Principal Stockholder shall then be under no further
liability to any Underwriter in respect of the Shares not so delivered except as
provided in Sections 7, 9 and 10 hereof.
14. In all dealings hereunder, you shall act on behalf of each of the
Underwriters, and the parties hereto shall be entitled to act and rely upon any
statement, request, notice or agreement on behalf of any Underwriter made or
given by you jointly or by Goldman, Sachs & Co. on behalf of you as the
representatives.
All statements, requests, notices and agreements hereunder shall be in
writing, and if to the Underwriters shall be delivered or sent by mail, telex or
facsimile transmission to you as the representatives in care of Goldman, Sachs &
Co., 85 Broad Street, New York, New York 10004, Attention: Registration
Department; and if to the Company, the Operating Subsidiaries or Principal
Stockholder shall be delivered or sent by mail, telex or facsimile transmission
to the address of the Company set forth in the Registration Statement,
Attention: Secretary; provided, however, that any notice to an Underwriter
pursuant to Section 9(c) hereof shall be delivered or sent by mail, telex or
facsimile transmission to such Underwriter at its address set forth in its
Underwriters' Questionnaire or telex constituting such Questionnaire, which
address will be supplied to the Company by you on
-22-
<PAGE> 23
request. Any such statements, requests, notices or agreements shall take effect
upon receipt thereof.
15. This Agreement shall be binding upon, and inure solely to the benefit
of, the Underwriters, the Company, the Operating Subsidiaries and the Principal
Stockholder and, to the extent provided in Sections 9, 10 and 12 hereof, the
officers and directors of the Company and the Operating Subsidiaries and each
person who controls the Company, the Operating Subsidiaries or any Underwriter,
and their respective heirs, executors, administrators, successors and assigns,
and no other person shall acquire or have any right under or by virtue of this
Agreement. No purchaser of any of the Shares from any Underwriter shall be
deemed a successor or assign by reason merely of such purchase.
16. Time shall be of the essence of this Agreement. As used herein, the
term "business day" shall mean any day when the Commission's office in
Washington, D.C. is open for business.
17. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW YORK.
18. This Agreement may be executed by any one or more of the parties hereto
in any number of counterparts, each of which shall be deemed to be an original,
but all such counterparts shall together constitute one and the same instrument.
-23-
<PAGE> 24
If the foregoing is in accordance with your understanding, please sign and
return to us 8 counterparts hereof, and upon the acceptance hereof by you, on
behalf of each of the Underwriters, this letter and such acceptance hereof shall
constitute a binding agreement among each of the Underwriters, the Company, the
Operating Subsidiaries and the Principal Stockholder. It is understood that your
acceptance of this letter on behalf of each of the Underwriters is pursuant to
the authority set forth in a form of Agreement among Underwriters, the form of
which shall be submitted to the Company for examination, upon request, but
without warranty on your part as to the authority of the signers thereof.
Very truly yours,
Amscan Holdings, Inc.
By:_______________________________
Name:
Title:
Amscan Inc.
By:_______________________________
Name:
Title:
Am-Source, Inc.
By:_______________________________
Name:
Title:
Trisar, Inc.
By:_______________________________
Name:
Title:
-24-
<PAGE> 25
Amscan Distributors (Canada) Ltd.
By:_______________________________
Name:
Title:
JCS Realty Corp.
By:_______________________________
Name:
Title:
SSY Realty Corp.
By:_______________________________
Name:
Title:
__________________________________
John A. Svenningsen
Accepted as of the date hereof
Goldman, Sachs & Co.
Alex. Brown & Sons Incorporated
By:__________________________________
(Goldman, Sachs & Co.)
On behalf of each of the Underwriters
-25-
<PAGE> 26
SCHEDULE I
<TABLE>
<CAPTION>
NUMBER OF OPTIONAL
SHARES TO BE
TOTAL NUMBER OF PURCHASED IF
FIRM SHARES MAXIMUM OPTION
UNDERWRITER TO BE PURCHASED EXERCISED
----------- --------------- ------------------
<S> <C> <C>
Goldman, Sachs & Co...............................
Alex. Brown & Sons Incorporated...................
[Names of other Underwriters].....................
Total....................................
</TABLE>
-26-
<PAGE> 27
SCHEDULE II
<TABLE>
<CAPTION>
Subsidiary Percentage Owned by Company
- ---------- ---------------------------
<S> <C>
Amscan Inc. 100
Am-Source, Inc. 100
Trisar, Inc. 100
Amscan Distributors (Canada) Ltd. 100
Amscan Holdings Limited 75
Amscan (Asia Pacific) Pty. Ltd. 85
Amscan Partyartikel GmbH 95
Amscan Svenska AB 100
Amscan de Mexico, S.A. de C.V. 48
JCS Realty Corp. 100
SSY Realty Corp. 100
</TABLE>
-1-
<PAGE> 28
ANNEX I
Pursuant to Section 8(e) of the Underwriting Agreement, KPMG Peat Marwick
LLP shall furnish letters to the Underwriters to the effect that:
(i) They are independent certified public accountants with respect
to the Companies and its subsidiaries within the meaning of the Act and
the applicable published rules and regulations thereunder;
(ii) In their opinion, the financial statements and any
supplementary financial information and schedules examined by them and
included in the Prospectus or the Registration Statement comply as to
form in all material respects with the applicable accounting
requirements of the Act and the related published rules and regulations
thereunder; and, if applicable, they have made a review in accordance
with standards established by the American Institute of Certified
Public Accountants of the unaudited combined interim financial
statements of the Companies for the periods specified in such letter;
(iii) They have made a review in accordance with standards
established by the American Institute of Certified Public Accountants
of the unaudited condensed combined statements of income and combined
statements of cash flows included in the Prospectus and on the basis of
specified procedures including inquiries of officials of the Companies
who have responsibility for financial and accounting matters regarding
whether the unaudited condensed combined financial statements referred
to in paragraph (vi)(A)(i) below comply as to form in all material
respects with the applicable accounting requirements of the Act and the
related published rules and regulations, nothing came to their
attention that caused them to believe that the unaudited condensed
combined financial statements do not comply as to form in all material
respects with the applicable accounting requirements of the Act and the
related published rules and regulations;
(iv) The unaudited selected financial information with respect to
the combined results of operations and financial position of the
Company for the three years ended December 31, 1995 included in the
Prospectus agrees with the corresponding amounts in the audited
combined financial statements for such years;
(v) They have compared the information in the Prospectus under
selected captions with the disclosure requirements of Regulation S-K
and on the basis of limited procedures specified in such letter nothing
came to their attention as a result of the foregoing procedures that
caused them to believe that this information does not conform in all
material respects with the disclosure requirements of Items 301, 302
and 402, respectively, of Regulation S-K;
(vi) On the basis of limited procedures, not constituting an
examination in accordance with generally accepted auditing standards,
consisting of a reading of the unaudited financial statements and other
information referred to below, a reading of the latest available
interim financial statements of the Companies, inspection of the minute
books of the Companies since the date of the latest audited financial
statements included in the Prospectus, inquiries of officials of the
Companies responsible for financial and accounting matters and such
other
-1-
<PAGE> 29
inquiries and procedures as may be specified in such letter, nothing
came to their attention that caused them to believe that:
(A) (i) the unaudited combined statements of income and
combined statements of cash flows included in the Prospectus do
not comply as to form in all material respects with the
applicable accounting requirements of the Act and the related
published rules and regulations, or (ii) any material
modifications should be made to the unaudited combined statements
of income and combined statements of cash flows included in the
Prospectus for them to be in conformity with generally accepted
accounting principles;
(B) any other unaudited income statement data and balance
sheet items included in the Prospectus (other than such data and
items for the two years ended December 31, 1992) do not agree
with the corresponding items in the unaudited combined financial
statements from which such data and items were derived, and any
such unaudited data and items were not determined on a basis
substantially consistent with the basis for the corresponding
amounts in the audited combined financial statements included in
the Prospectus;
(C) the unaudited financial statements which were not
included in the Prospectus but from which were derived any
unaudited combined financial statements referred to in Clause (A)
and any unaudited income statement data and balance sheet items
included in the Prospectus and referred to in Clause (B) were not
determined on a basis substantially consistent with the basis for
the audited combined financial statements included in the
Prospectus;
(D) any unaudited pro forma combined condensed financial
statements included in the Prospectus do not comply as to form in
all material respects with the applicable accounting requirements
of the Act and the published rules and regulations thereunder or
the pro forma adjustments have not been properly applied to the
historical amounts in the compilation of those statements;
(E) as of a specified date not more than five days prior to
the date of such letter, there have been any changes in the
capital stock (other than issuances of capital stock upon
exercise of options and stock appreciation rights, upon earn-outs
of performance shares and upon conversions of convertible
securities, in each case which were outstanding on the date of
the latest financial statements included in the Prospectus) or
any increase in the long-term debt of the Companies, or any
decreases in net current assets or stockholders' equity or other
items specified by the Representatives of the Companies, or any
increases in any items specified by the Representatives, in each
case as compared with amounts shown in the latest balance sheet
included in the Prospectus, except in each case for changes,
increases or decreases which the Prospectus discloses have
occurred or may occur or which are described in such letter; and
(F) for the period from the date of the latest financial
statements included in the Prospectus to the specified date
referred to in Clause (E) there were any decreases in sales or
operating income or net income or other items specified by the
Representatives, or any increases in any items specified by the
Representatives, in each case as compared with the comparable
period of the preceding year and with any other
-2-
<PAGE> 30
period of corresponding length specified by the Representatives,
except in each case for decreases or increases which the
Prospectus discloses have occurred or may occur or which are
described in such letter;
(vii) In addition to the audits referred to in their report(s)
included in the Prospectus, they have performed certain specified
procedures not constituting an audit in accordance with generally
accepted auditing standards, consisting of a reading of the combining
schedules of the Companies, a comparison of the unaudited financial
data presented in the unaudited financial statements with the general
accounting records of the individual companies to which such unaudited
financial statements relate and inquiries of officials of the Companies
responsible for financial and accounting matters, with respect to the
combined selected financial statements for the Companies for the years
ended December 31, 1991 and 1992 which appear in the Prospectus and
which are derived from the audited financial statements and the
unaudited financial statements, as the case may be, of the individual
Companies for such years. Based on the foregoing procedures, nothing
came to their attention that caused them to believe that:
(A) the combined financial statements of the Company for the
years ended December 31, 1991 and 1992 were not determined on a
basis substantially consistent with the basis for the
determination of the combined financial statements included in
the Prospectus for the three years ended December 31, 1995; and
(viii) In addition to the examination referred to in their report(s)
included in the Prospectus and the limited procedures, inspection of
minute books, inquiries and other procedures referred to in paragraphs
(vi) and (vii) above, they have carried out certain specified
procedures, not constituting an examination in accordance with
generally accepted auditing standards, with respect to certain amounts,
percentages and financial information specified by the Representatives,
which are derived from the general accounting records of the Company
and its subsidiaries, which appear in the Prospectus, or in Part II of,
or in exhibits and schedules to, the Registration Statement specified
by the Representatives, and have compared certain of such amounts,
percentages and financial information with the accounting records of
the Company and its subsidiaries and have found them to be in
agreement.
-3-
<PAGE> 1
Exhibit 2(a)
SHARE EXCHANGE AGREEMENT
SHARE EXCHANGE AGREEMENT (this "Agreement") dated as of
December ___, 1996, among Amscan Holdings, Inc., a Delaware corporation (the
"Company"), and John A. Svenningsen, an individual residing in the State of
New York ("Svenningsen"), Gerald C. Rittenberg, an individual residing in the
State of New York ("Rittenberg") and the following trusts each created by
agreement dated as of October 29, 1996: Christina Svenningsen Trust, Jon
Svenningsen Trust, Elisabeth Svenningsen Trust, Melissa Svenningsen Trust,
Emily Svenningsen Trust, and Sara Svenningsen Trust (such six trusts being
collectively, the "Svenningsen Trusts" and individually, a "Svenningsen Trust").
W I T N E S S E T H :
WHEREAS, Svenningsen is the owner of the shares (the
"Svenningsen Exchange Shares") of capital stock of the companies (the "Operating
Companies") listed on Schedules A and B hereto in the number and percentage
listed opposite each such company; and
WHEREAS, each of the Svenningsen Trusts is the owner of
13-1/3 shares (such 13-1/3 shares owned by a Svenningsen Trust being with
respect to such Svenningsen Trust the "Trust Exchange Shares") of the common
stock, no par value of SSY Realty Corp., a New York corporation and one of the
Operating Companies ("SSY"); and
WHEREAS, Rittenberg is the owner of 32.84 shares (the
"Rittenberg Exchange Shares") of the common stock, no par value of Amscan Inc.,
a New York corporation and one of the Operating Companies ("Amscan"); and
WHEREAS, 1,000 shares of the Company's common stock, par
value $0.10 per share ("Company Common Stock") were issued previously to
Svenningsen in connection with the organization of the Company; and
WHEREAS, in connection with the organization of the Company
and the initial public offering of Company Common Stock (the "Transaction"), the
Company and Svenningsen wish to provide for (i) the shares of capital stock of
each of the Operating Companies identified in Schedule A hereto which constitute
a portion of the Svenningsen Exchange Shares to be exchanged by Svenningsen for
a certain number of shares of Company Common Stock determined by the Company and
Svenningsen to represent the fair market value of such one of the Operating
Companies and (ii) the shares of capital stock of each of the Operating
Companies identified in Schedule B hereto which constitute a portion of the
Svenningsen Exchange Shares to be exchanged by Svenningsen for a combination of
a certain number of shares of Company Common Stock and cash in the
<PAGE> 2
2
amount set forth opposite the name of such one of the Operating Companies in
Schedule B hereto determined by the Company and Svenningsen to represent in the
aggregate the fair market value of such one of the Operating Companies, which
shares of Company Common Stock to be delivered to Svenningsen in respect of the
Operating Companies total ______________ additional shares of Company Common
Stock (such aggregate number of shares being the "Svenningsen Acquisition
Shares"), and which cash payments aggregate $133,000 (such aggregate cash amount
being the "Svenningsen Cash Payment," and together with the Svenningsen
Acquisition Shares, the "Svenningsen Consideration"); and
WHEREAS, in connection with the Transaction, the Company
and each of the Svenningsen Trusts wish to provide for the exchange by each of
such Svenningsen Trusts of the Trust Exchange Shares for the number of shares of
Company Common Stock listed opposite such Svenningsen Trust's name on Schedule C
hereto (such shares of Company Common Stock transferred to a Svenningsen Trust
being with respect to such Svenningsen Trust the "Trust Acquisition Shares");
and
WHEREAS, in connection with the Transaction, the Company
and Rittenberg wish to provide for the exchange by Rittenberg of the Rittenberg
Exchange Shares for 660,000 shares of Company Common Stock (the "Rittenberg
Acquisition Shares"); and
WHEREAS, Rittenberg and the Company wish to confirm certain
of Rittenberg's agreements regarding restrictions on the transfer of the
Rittenberg Acquisition Shares.
NOW, THEREFORE, for good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties hereto
agree as follows:
1. EXCHANGE OF SHARES
(a) Effective as of the date hereof Svenningsen transfers
all right, title and interest to the Svenningsen Exchange Shares to the Company,
in exchange for the Svenningsen Consideration, and the Company issues and
delivers the Svenningsen Acquisition Shares and pays the Svenningsen Cash
Payment to Svenningsen in exchange for the Svenningsen Exchange Shares.
(b) Effective as of the date hereof each Svenningsen Trust
transfers all right, title and interest to the Trust Exchange Shares to the
Company, in exchange for the Trust Acquisition Shares, and the Company issues
and delivers the Trust Acquisition Shares in exchange for the Trust Exchange
Shares.
<PAGE> 3
3
(c) Effective as of the date hereof Rittenberg transfers
all right, title and interest to the Rittenberg Exchange Shares to the Company,
in exchange for the Rittenberg Acquisition Shares, and the Company issues and
delivers the Rittenberg Acquisition Shares in exchange for the Rittenberg
Exchange Shares.
2. DELIVERY OF SHARES AND CASH PAYMENT TO SVENNINGSEN
(a) Promptly upon the execution and delivery of this
Agreement, (i) Svenningsen shall deliver to the Company certificates evidencing
the Svenningsen Exchange Shares, duly endorsed in blank or accompanied by
appropriate instruments of transfer in form reasonably satisfactory to the
Company, (ii) the Company shall deliver to Svenningsen certificates evidencing
the Svenningsen Acquisition Shares, and shall record the issuance of such shares
to Svenningsen on the stock records of the Company, and (iii) the Company shall
pay the Svenningsen Cash Payment to Svenningsen by Company check, by wire
transfer or as otherwise agreed to by the parties.
(b) Promptly upon the execution and delivery of this
Agreement, (i) each Svenningsen Trust shall deliver to the Company certificates
evidencing the Trust Exchange Shares, duly endorsed in blank or accompanied by
appropriate instruments of transfer in form reasonably satisfactory to the
Company, and (ii) the Company shall deliver to each Svenningsen Trust
certificates evidencing the Svenningsen Acquisition Shares and shall record the
issuance of such shares to each Svenningsen Trust on the stock records of the
Company.
(c) Promptly upon the execution and delivery of this
Agreement, (i) Rittenberg shall deliver to the Company certificates evidencing
the Rittenberg Exchange Shares, duly endorsed in blank or accompanied by
appropriate instruments of transfer in form reasonably satisfactory to the
Company, and (ii) the Company shall deliver to Rittenberg certificates
evidencing the Rittenberg Acquisition Shares, and shall record the issuance of
such shares to Rittenberg on the stock records of the Company.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
(a) The Company hereby represents and warrants to
Svenningsen, Rittenberg and the Svenningsen Trusts as follows:
(i) The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware
and has full corporate power and authority to conduct its business as it is now
being conducted. The Company is duly qualified as a foreign corporation to do
business, and is in good standing, in each jurisdiction where such qualification
is necessary, except where a failure to be so
<PAGE> 4
4
qualified could not reasonably be expected to have a material adverse effect
upon the business, properties or operations of the Company.
(ii) The authorized capital stock of the Company
consists of 50,000,000 shares of Company Common Stock, of which, without giving
effect to the shares of Company Common Stock issued pursuant hereto, 1,000
shares are issued and outstanding, and are owned of record by Svenningsen, and
5,000,000 shares of preferred stock, par value $0.10 per share, of which no
shares are issued and outstanding.
(iii) No consent, approval or authorization of,
or declaration, filing or registration with, any third party, including any
governmental or regulatory authority, on the part of the Company, is required in
connection with the execution and delivery of this Agreement or the consummation
of the transactions contemplated hereby other than the filing of a Form D
pursuant to regulations under the Securities Act of 1933, as amended (such Act
and the rules and regulations thereunder, collectively, the "1933 Act") and
other than any consents, approvals, authorizations, registrations or
qualifications as may be required under state securities or blue sky laws in
connection with the exchange contemplated hereby.
(iv) The Company has full corporate power and
authority to execute, deliver and perform this Agreement, and to consummate the
transactions contemplated hereby. The execution, delivery and performance of
this Agreement, and the consummation of the transactions contemplated hereby,
will not conflict with, or result in a violation of, or constitute a material
default under, any provision of the Certificate of Incorporation or By-laws of
the Company, or any material agreement, mortgage, indenture, license, permit,
lease or other instrument or any judgment, decree, ruling or order to which the
Company is a party or by which the Company or its properties are bound.
(v) This Agreement has been duly authorized by
all necessary corporate action, has been duly executed and delivered by or on
behalf of the Company and constitutes the legal, valid and binding obligation of
the Company, enforceable against it in accordance with its terms, except as such
enforcement may be limited by bankruptcy, insolvency, moratorium or other
similar laws presently or hereafter in effect affecting the enforcement of
creditors' rights generally or by general rules of equity.
(b) The Company hereby represents and warrants to
Svenningsen that the Svenningsen Acquisition Shares, when issued to Svenningsen
in accordance with the terms hereof, will have been duly authorized, validly
issued, and will be fully paid and non-assessable. The issuance of the
Svenningsen Acquisition Shares to Svenningsen in accordance with the terms
hereof will transfer to Svenningsen full legal and valid title thereto, free and
clear of any liens, security interests, charges, pledges or encumbrances.
<PAGE> 5
5
(c) The Company hereby represents and warrants to each of
the Svenningsen Trusts that the Trust Acquisition Shares, when issued to such
Svenningsen Trust in accordance with the terms hereof, will have been duly
authorized, validly issued and will be fully paid and non-assessable. The
issuance of the Trust Acquisition Shares to such Svenningsen Trust in accordance
with the terms hereof will transfer to such Svenningsen Trust full legal and
valid title thereto, free and clear of any liens, security interests, charges,
pledges or encumbrances.
(d) The Company hereby represents and warrants to
Rittenberg that the Rittenberg Acquisition Shares, when issued to Rittenberg in
accordance with the terms hereof, will have been duly authorized, validly
issued, and will be fully paid and non-assessable. The issuance of the
Rittenberg Acquisition Shares to Rittenberg in accordance with the terms hereof
will transfer to Rittenberg full legal and valid title thereto, free and clear
of any liens, security interests, charges, pledges or encumbrances.
4. REPRESENTATIONS AND WARRANTIES OF SVENNINGSEN
Svenningsen hereby represents and warrants to the Company
as follows:
(a) The Svenningsen Exchange Shares are owned beneficially
and of record by Svenningsen, free and clear of any liens, security interests,
charges, pledges or encumbrances. The Svenningsen Exchange Shares, the
Rittenberg Exchange Shares and the Trust Exchange Shares have been duly
authorized, and are validly issued, fully paid and non-assessable, and the
Svenningsen Exchange Shares represent the percentage of issued and outstanding
capital stock of the Operating Companies as set forth on Schedules A and B
hereto. The transfer of the Svenningsen Exchange Shares to the Company in
accordance with the terms hereof will transfer to the Company full legal and
valid title thereto, free and clear of any liens, security interests, charges,
pledges or encumbrances.
(b) No consent, approval or authorization of, or
declaration, filing or registration with, any third party, including any
governmental or regulatory authority, on the part of Svenningsen or any of the
Operating Companies, is required in connection with the execution and delivery
of this Agreement or the consummation of the transactions contemplated hereby
other than consents which have heretofore been obtained.
(c) Svenningsen has full power and authority to execute,
deliver and perform this Agreement, and to consummate the transactions
contemplated hereby. The execution, delivery and performance of this Agreement,
and the consummation of the transactions contemplated hereby, will not conflict
with, or result in a violation of, or constitute a default under, any provision
of the Certificate or Articles of Incorporation or By-laws of any of the
Operating Companies, or any material agreement, mortgage, indenture, license,
permit, lease or other instrument or any judgment, decree, ruling or
<PAGE> 6
6
order to which any of Svenningsen or the Operating Companies is a party or by
which any of Svenningsen or the Operating Companies or his or their respective
properties are bound.
(d) This Agreement constitutes the legal, valid and binding
obligation of Svenningsen, enforceable against him in accordance with its terms,
except as such enforcement may be limited by bankruptcy, insolvency, moratorium
or other similar laws presently or hereafter in effect affecting the enforcement
of creditors' rights generally or by general rules of equity.
(e) Svenningsen will acquire the Svenningsen Acquisition
Shares for his own account and not with a view to, or for resale in connection
with, the distribution or other disposition thereof except in compliance with
1933 Act, and he will not, directly or indirectly, offer, sell, pledge, transfer
or otherwise dispose of any of such Svenningsen Acquisition Shares (or solicit
any offers to buy, purchase or otherwise acquire or take a pledge of any of such
Svenningsen Acquisition Shares) except in compliance with the 1933 Act.
Svenningsen acknowledges that the Svenningsen Acquisition Shares shall
constitute "restricted securities" as defined in Rule 144 under the 1933 Act.
(f) Svenningsen is an "accredited investor" as defined in
Regulation D under the 1933 Act.
5. REPRESENTATIONS AND WARRANTIES OF THE SVENNINGSEN TRUSTS
Each of the Svenningsen Trusts hereby represents and
warrants to the Company solely as to itself as follows:
(a) The Trust Exchange Shares are owned by it beneficially
and of record, free and clear of any liens, security interests, charges, pledges
or encumbrances. The Trust Exchange Shares represent 6-2/3 percent of the issued
and outstanding capital stock of SSY. The transfer of the Trust Exchange Shares
to the Company in accordance with the terms hereof will transfer to the Company
full legal and valid title thereto, free and clear of any liens, security
interests, charges, pledges or encumbrances.
(b) No consent, approval or authorization of, or
declaration, filing or registration with, any third party, including any
governmental or regulatory authority, on the part of the Svenningsen Trust, is
required in connection with the execution and delivery of this Agreement or the
consummation of the transactions contemplated hereby.
(c) The Svenningsen Trust has full power and authority to
execute, deliver and perform this Agreement, and to consummate the transactions
contemplated hereby. The execution, delivery and performance of this Agreement,
and the consummation of the transactions contemplated hereby, will not conflict
with, or result in a
<PAGE> 7
7
violation of, or constitute a default under, any material agreement, mortgage,
indenture, license, permit, lease or other instrument or any judgment, decree,
ruling or order to which the Svenningsen Trust is a party or by which the
Svenningsen Trust or its properties are bound.
(d) This Agreement constitutes the legal, valid and binding
obligation of the Svenningsen Trust, enforceable against it in accordance with
its terms, except as such enforcement may be limited by bankruptcy, insolvency,
moratorium or other similar laws presently or hereafter in effect affecting the
enforcement of creditors' rights generally or by general rules of equity.
(e) The Svenningsen Trust will acquire the Trust
Acquisition Shares for its own account and not with a view to, or for resale in
connection with, the distribution or other disposition thereof except in
compliance with the 1933 Act, and the Svenningsen Trust will not, directly or
indirectly, offer, sell, pledge, transfer or otherwise dispose of any of such
Trust Acquisition Shares (or solicit any offers to buy, purchase or otherwise
acquire or take a pledge of any of such Trust Acquisition Shares) except in
compliance with the 1933 Act. The Svenningsen Trust acknowledges that the Trust
Acquisition Shares shall constitute "restricted securities" as defined in Rule
144 under the 1933 Act.
(f) The Svenningsen Trust has such knowledge and experience
in financial and business matters that it is capable of evaluating the merits
and risks of the prospective investment in the Trust Acquisition Shares and the
Svenningsen Trust has received a copy of the Company's Preliminary Prospectus
dated December 2, 1996 relating to the proposed initial public offering of
Company Common Stock by the Company.
6. REPRESENTATIONS AND WARRANTIES OF RITTENBERG
Rittenberg hereby represents and warrants to the Company as
follows:
(a) The Rittenberg Exchange Shares are owned by Rittenberg
beneficially and of record, free and clear of any liens, security interests,
charges, pledges or encumbrances. The transfer of the Rittenberg Exchange Shares
to the Company in accordance with the terms hereof will transfer to the Company
full legal and valid title thereto, free and clear of any liens, security
interests, charges, pledges or encumbrances.
(b) No consent, approval or authorization of, or
declaration, filing or registration with, any third party, including any
governmental or regulatory authority, on the part of Rittenberg, is required in
connection with the execution and delivery of this Agreement or the consummation
of the transactions contemplated hereby.
<PAGE> 8
8
(c) Rittenberg has full power and authority to execute,
deliver and perform this Agreement, and to consummate the transactions
contemplated hereby. The execution, delivery and performance of this Agreement,
and the consummation of the transactions contemplated hereby, will not conflict
with, or result in a violation of, or constitute a default under, any material
agreement, mortgage, indenture, license, permit, lease or other instrument or
any judgment, decree, ruling or order to which Rittenberg is a party or by which
Rittenberg or his respective properties are bound.
(d) This Agreement constitutes the legal, valid and binding
obligation of Rittenberg, enforceable against him in accordance with its terms,
except as such enforcement may be limited by bankruptcy, insolvency, moratorium
or other similar laws presently or hereafter in effect affecting the enforcement
of creditors' rights generally or by general rules of equity.
(e) Rittenberg will acquire the Rittenberg Acquisition
Shares for his own account and not with a view to, or for resale in connection
with, the distribution or other disposition thereof except in compliance with
the 1933 Act, and he will not, directly or indirectly, offer, sell, pledge,
transfer or otherwise dispose of any of such Rittenberg Acquisition Shares (or
solicit any offers to buy, purchase or otherwise acquire or take a pledge of any
of such Rittenberg Acquisition Shares) except in compliance with the 1933 Act.
Rittenberg acknowledges that the Rittenberg Acquisition Shares shall constitute
"restricted securities" as defined in Rule 144 under the 1933 Act.
(f) Rittenberg is an "accredited investor" as defined in
Regulation D under the 1933 Act.
7. CONFIRMATION OF RITTENBERG'S AGREEMENTS
Subject to and in accordance with the terms of the Stock
Agreement among Rittenberg, Svenningsen and Amscan Inc., dated October 9, 1996
(the "Stock Agreement") and the Loan Agreement between Svenningsen, Rittenberg
and Kurzman & Eisenberg, LLP, as escrow agent, dated October 9, 1996 (the "Loan
Agreement"), Rittenberg hereby confirms his agreement that he will not sell any
Rittenberg Acquisition Shares received by Rittenberg hereunder for a period of
twelve (12) consecutive months from the date hereof, except that during such
twelve month period, Rittenberg may (i) transfer any of such shares to
Svenningsen to repay indebtedness which Rittenberg might incur pursuant to the
Loan Agreement, and/or (ii) make gifts of the Rittenberg Acquisition Shares;
provided, however that Rittenberg personally agrees and agrees on behalf of the
donees of Rittenberg Acquisition Shares in connection with such gifts that none
of the donees of his gifts will sell Rittenberg Acquisition Shares prior to the
third anniversary of the transfer of the Rittenberg Acquisition Shares to
Rittenberg.
<PAGE> 9
9
8. MISCELLANEOUS
(a) From time to time on and after the date hereof, each of
the parties hereto shall deliver or cause to be delivered such further documents
and instruments and shall do and cause to be done such further acts and things
as shall be necessary or desirable to carry out the intent of the parties hereto
and accomplish the purposes set forth herein.
(b) This Agreement may not be modified or amended except by
an instrument or instruments in writing signed by the party against whom
enforcement of any such modifications or amendment is sought. Any party hereto
may, by an instrument in writing, waive compliance by another party hereto with
any term or provision of this Agreement included for the benefit of such waiving
party. The waiver by any party hereto of a breach of any terms or provisions of
this Agreement shall not be construed as a waiver of any other terms or
provisions or of any further breach.
(c) This Agreement, together with the related schedules
hereto, constitutes the entire agreement among the parties hereto and supersedes
all prior agreements, understandings and arrangements, oral or written, among
the parties hereto with respect to the subject matter herein or thereof.
(d) This Agreement shall inure to the benefit of and be
binding upon the parties hereto and their respective successors. This Agreement
may not be assigned by any party hereto.
(e) Any notice or other communication given pursuant to
this Agreement shall be in writing and shall be given to the parties at the
following addresses or at such other addresses as the parties may hereafter
specify in writing:
If to the Company:
Amscan Holdings, Inc.
80 Grasslands Road
Elmsford, New York 10523
Attn.: Mr. James M. Harrison
with a copy to:
Cummings & Lockwood
Four Stamford Plaza
P.O. Box 120
Stamford, Connecticut 06904
Attn.: Paul G. Hughes, Esq.
<PAGE> 10
10
If to Svenningsen or any of the Svenningsen Trusts:
Mr. John A. Svenningsen
c/o Amscan Holdings, Inc.
80 Grasslands Road
Elmsford, New York 10523
with a copy to:
Kurzman & Eisenberg, LLP
One North Broadway
White Plains, New York 10601
Attn: Joel Lever, Esq.
If to Rittenberg:
Mr. Gerald C. Rittenberg
18 Carey Drive
Bedford, New York 10506
with a copy to:
Orloff, Lowenbach, Stifelman & Siegel, P.A.
101 Eisenhower Parkway
Roseland, New Jersey 07068
Attn: Susan M. Holzman, Esq.
Any such notice or communication shall be hand delivered,
mailed by registered or certified mail, return receipt requested, postage
prepaid, sent by a recognized overnight delivery service or sent by telecopier
with receipt confirmed by telephone by the recipient of such notice or other
communication. If hand delivered, notice shall be effective upon delivery; if
mailed, notice shall be effective upon the fourth day following the postmark
date; if sent by a recognized overnight delivery service, notice shall be
effective upon the second business day after deposit with such delivery service;
if telecopied, notice shall be effective upon confirmation of receipt.
(f) This Agreement shall be governed and construed in
accordance with the laws of the State of New York, without giving effect to
principles of conflict of laws. All claims, disputes or causes of action
relating to or arising out of this Agreement shall be
<PAGE> 11
11
brought, heard and resolved solely and exclusively by and in a federal or state
court situated in New York.
(g) This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
(h) Descriptive headings are for convenience only and will
not control or affect the meaning or construction of any provision of this
Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date set forth above.
AMSCAN HOLDINGS, INC.
-----------------------------------
Name:
Title:
-----------------------------------
John A. Svenningsen
-----------------------------------
Gerald C. Rittenberg
<PAGE> 12
12
CHRISTINA SVENNINGSEN TRUST
By_________________________________
John A Svenningsen, Trustee
JON SVENNINGSEN TRUST
By_________________________________
John A Svenningsen, Trustee
ELISABETH SVENNINGSEN TRUST
By_________________________________
John A Svenningsen, Trustee
MELISSA SVENNINGSEN TRUST
By_________________________________
John A Svenningsen, Trustee
EMILY SVENNINGSEN TRUST
By_________________________________
John A Svenningsen, Trustee
SARA SVENNINGSEN TRUST
By_________________________________
John A Svenningsen, Trustee
<PAGE> 13
SCHEDULE A
<TABLE>
NUMBER OF SHARES AND PERCENTAGE OF ISSUED AND
OUTSTANDING SHARES OWNED AND TO BE EXCHANGED BY JOHN
NAME OF ENTITY A. SVENNINGSEN
- -------------- -----------------------------------------------------
<S> <C>
Amscan Inc. 660 shares of common stock, no par value/100%
Am-Source, Inc. 60 shares of common stock, no par value/50%
Trisar, Inc. 266.66 shares of common stock, no par value/100%
JCS Realty Corp. 1 share of common stock, no par value/100%
SSY Realty Corp. 120 shares of common stock, no par value/60%
</TABLE>
<PAGE> 14
SCHEDULE B
<TABLE>
<CAPTION>
NUMBER OF SHARES AND PERCENTAGE OF ISSUED CASH PORTION OF
AND OUTSTANDING SHARES OWNED AND TO BE SVENNINGSEN
NAME OF ENTITY EXCHANGED BY JOHN A. SVENNINGSEN CONSIDERATION
-------------- -------------------------------- -------------
<S> <C> <C>
Amscan Distributors (Canada) Ltd. 3,000 shares of common stock, par value $1 (Canadian) per $75,000
share/100%
Amscan Svenska AB 1,500 shares of common stock, no par value/100% $2,000
Amscan Holdings Limited 215,625 shares of common stock, par value 20p per share/75% $20,000
5,000 shares of preference stock, par value 1 British Pound
Sterling per share/100%
Amscan (Asia Pacific) Pty. Ltd. 760 shares of common stock, par value Aus. $1 per share/85% $20,000
Amscan Partyartikel GmbH 47,500 shares/95% $14,000
Amscan de Mexico, S.A. de C.V. 29 shares of Class B common stock, no par value and 580 shares $2,000
of Class B-1 common stock, no par value/48.3% of all
outstanding shares of capital stock
</TABLE>
<PAGE> 15
SCHEDULE C
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
NAME OF TRUST COMPANY COMMON STOCK
------------- --------------------
<S> <C>
Christina Svenningsen Trust
Jon Svenningsen Trust
Elisabeth Svenningsen Trust
Melissa Svenningsen Trust
Emily Svenningsen Trust
Sara Svenningsen Trust
</TABLE>
<PAGE> 1
Exhibit 4(b)
AMENDMENT NO. 1
Dated as of November 14, 1996
AMENDMENT by and among AMSCAN INC., a corporation organized
under the laws of the State of New York (for itself and as successor by merger
to Kookaburra USA, Ltd. and Deco Paper Products, Inc.), and TRISAR INC.
(collectively, the "Borrowers" and each, individually, a "Borrower"), each of
the banks parties to the Credit Agreement (as hereinafter defined) (the "Banks")
and THE CHASE MANHATTAN BANK (successor by merger to THE CHASE MANHATTAN BANK,
N.A.), as agent for the Banks (in such capacity, together with its successors
and assigns in such capacity, the "Agent").
PRELIMINARY STATEMENTS:
A. Amscan Inc., Trisar, Inc., the Banks and the Agent have
entered into a Credit Agreement dated as of September 20, 1995 (the "Credit
Agreement"; the capitalized terms defined therein being used herein as therein
defined unless otherwise defined herein).
B. The Borrowers, the Banks and the Agent have agreed to
amend the Credit Agreement as hereinafter set forth.
SECTION 1. AMENDMENTS. The Credit Agreement is, effective
as of the date hereof and subject to the satisfaction of the conditions
precedent set forth in Section 2 hereof, hereby amended as follows:
(a) The definition of the term "Letters of
Credit" contained in Section 1.1 of the Credit Agreement is amended and restated
in full to read as follows:
"Letters of Credit" means one or more
commercial letters of credit, each with an expiration date
of up to six (6) months from the date of issue, or one or
more standby letters of credit with either (a) an
expiration date of up to twelve (12) months from the date
of issue, or (b) an evergreen provision, by virtue of which
the letter of credit shall renew annually unless the
Issuing Bank provides the beneficiary with notice of
non-renewal, issued by the Issuing Bank for the account of
any Borrower as more particularly set forth in Section
2.1(b) hereof. "Letters of Credit" shall
<PAGE> 2
2
include, without limitation, those Letters of Credit set
forth on Schedule 1.1 hereto.
(b) Section 2.1(b) of the Credit Agreement is
amended and restated in full to read as follows:
(b) Subject to the terms and conditions
of this Agreement, the Issuing Bank, on behalf of the
Banks, agrees for the account of any Borrower from time to
time during the period from the date hereof until the
Termination Date, to issue Letters of Credit, PROVIDED,
HOWEVER, that the aggregate amount of all L/C Credits may
not exceed at any time the lesser of (i) $10,000,000 (only
$4,000,000 of which may be standby letters of credit) or
(ii) the amount by which the Borrowing Base exceeds the
aggregate principal amount of all outstanding Loans. The
Banks shall participate in each such issuance consistent
with Section 10.16. All payments in respect of a Letter of
Credit issued by the Issuing Bank will be due and payable
in accordance with the terms of this Agreement and the L/C
Documents relating to such issuance.
Notwithstanding anything to the
contrary herein, no Letter of Credit shall have an expiry
date later than five (5) days prior to the Termination
Date.
(c) Section 7.1 of the Credit Agreement is
amended by the addition of the following new paragraph (c), and relettering the
following paragraphs accordingly:
(c) Debt of such Borrower pursuant to
guarantee agreements, but only to the extent that such Debt
is secured by a Letter of Credit issued by the Issuing Bank
pursuant to Section 2.1(b);
(d) Section 7.2 of the Credit Agreement is
amended and restated in full to read as follows:
7.2 GUARANTEES, ETC. Assume, guarantee,
endorse or otherwise be or become directly or contingently
responsible or liable, or permit any of its Subsidiaries to
assume, guarantee, endorse or otherwise be or become
directly or indirectly responsible or liable (including,
but not limited to, an agreement to purchase any
obligation, stock, assets, goods or services or to supply
or advance any funds, asset, goods or services, or an
agreement to maintain or
<PAGE> 3
3
cause such Person to maintain a minimum working capital or
net worth or otherwise to assure the creditors of any
Person against loss) for the obligations of any Person,
except:
(a) guarantees by endorsement of
negotiable instruments for deposit or collection or similar
transactions in the ordinary course of business;
(b) as set forth on Schedule 5.10; and
(c) guarantees secured in whole by a
Letter of Credit issued by the Issuing Bank pursuant to
Section 2.1(b).
(e) A new Schedule 1.1 is added to the Credit
Agreement in the form of Schedule 1.1 attached hereto.
SECTION 2. CONDITIONS OF EFFECTIVENESS. This Amendment
shall become effective when, and only when, the Agent shall have received
counterparts of this Amendment duly executed by the Borrowers, the Banks and the
Agent, and Section 1 hereof shall become effective when, and only when, the
Agent shall have additionally received all of the following documents, each
document (unless otherwise indicated) being dated the date of receipt thereof by
the Agent (which date shall be the same for all such documents), in form and
substance satisfactory to the Agent and its legal counsel:
(a) Certified copies of (i) the resolutions of
the Board of Directors of each Borrower approving this Amendment and the matters
contemplated hereby and (ii) all documents evidencing other necessary corporate
action and governmental approvals, if any, with respect to this Amendment and
the matters contemplated hereby.
(b) A certificate of the Secretary or an
Assistant Secretary of each Borrower certifying the names and true signatures of
the officers of such Borrower authorized to sign this Amendment and the other
documents to be delivered hereunder.
(c) A certificate signed by a duly authorized
officer of each Borrower stating that:
(i) The representations and warranties contained
in Section 3 hereof are correct on and as of the date of
such certificate as though made on and as of such date, and
(ii) No event has occurred and is continuing
which constitutes a Default or an Event of Default.
<PAGE> 4
4
SECTION 3 REPRESENTATIONS AND WARRANTIES OF THE BORROWERS. Each
borrower represents and warrants as follows:
(a) Such Borrower is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction indicated at
the beginning of this Amendment.
(b) The execution, delivery and performance by such
Borrower of this Amendment are within such Borrower's corporate powers, have
been duly authorized by all necessary corporate action and do not contravene (i)
such Borrower's charter or by-laws, (ii) law or any contractual restriction
binding on or affecting such Borrower, or result in, or require, the creation or
imposition of any mortgage, deed of trust, pledge, lien, security interest or
other charge, encumbrance or preferential arrangement of any nature upon or with
respect to any of the properties now owned or hereafter acquired by such
Borrower.
(c) No authorization, approval or other action by, and no
notice to or filing with, any governmental authority or regulatory body is
required for the due execution, delivery and performance by such Borrower of
this Amendment.
(d) This Amendment constitutes legal, valid and binding
obligation of such Borrower enforceable against such Borrower in accordance with
its terms.
(e) The Security Agreement constitutes valid and perfected
first priority security interests and liens in and to the Collateral covered
thereby enforceable against all third parties in all jurisdictions and secure
the payment of all obligations of such Borrower under the Facility Documents
(including, without limitation, L/C Credits), and the execution, delivery and
performance of this Amendment do not adversely affect the aforesaid security
interests and liens of such Security Agreement.
(g) There is no pending or threatened action or proceeding
affecting such Borrower or any of its Subsidiaries before any court,
governmental agency or arbitrator, which may materially adversely affect the
financial condition or operations of such Borrower or any Subsidiary. There is
no pending or threatened action or proceeding affecting such Borrower or any of
its Subsidiaries before any court, governmental agency or arbitrator which
purports to affect the legality, validity or enforceability of this Amendment.
(h) The covenants of the Borrowers contained in those two
certain waiver letters pertaining to the Credit Agreement, each dated as of
September 5, 1996, have been satisfied or discharged in full.
<PAGE> 5
5
SECTION 4. REFERENCE TO AND EFFECT ON THE CREDIT AGREEMENT.
(a) Upon the effectiveness of section 1 hereof, on and
after the date hereof each reference in the Credit Agreement to "this
Agreement," "hereunder," "hereof," "herein" or words of like import, and each
reference in any Facility Documents to the Credit Agreement, shall mean and be a
reference to the Credit Agreement as amended hereby.
(b) Except as specifically amended above, the Credit
Agreement, the Notes and the other Facility Documents, shall remain in full
force and effect and are hereby ratified and confirmed. Without limiting the
generality of the foregoing, the Security Agreement and all of the Collateral
described therein do and shall continue to secure the payment of all
obligations, indebtedness and liabilities of the Borrowers to the Bank under the
Credit Agreement and the other Facility Documents (including, without
limitation, L/C Credits), as amended hereby.
(c) The execution, delivery and effectiveness of this
Amendment shall not, except as expressly provided herein, operate as a waiver of
any right, power or remedy of the Bank under any of the Facility Documents, nor
constitute a waiver of any provision of any of the Facility Documents.
Section 5. COSTS, EXPENSES AND TAXES. The Borrowers jointly and
severally agree to pay on demand all costs and expenses of the Agent in
connection with the preparation, execution and delivery of this Amendment,
including, without limitation, the reasonable fees and out-of-pocket expenses of
counsel for the Agent with respect thereto and with respect to advising the
agent as to its rights and responsibilities hereunder and thereunder. The
Borrowers further jointly and severally agree to pay on demand all costs and
expenses, if any (including, without limitation, reasonable counsel fees and
expenses), in connection with the enforcement (whether through negotiations,
legal proceedings or otherwise) of this Amendment and the other instruments and
documents to be delivered hereunder, including, without limitation, reasonable
counsel fees and expenses in connection with the enforcement of rights under
this section 5. In addition, the Borrowers shall pay any and all stamp and other
taxes payable or determined to be payable in connection with the execution and
delivery of this Amendment, and agrees to save the Agent and the Banks harmless
from and against any and all liabilities with respect to or resulting from any
delay in paying or omission to pay such taxes.
Section 6. EXECUTION IN COUNTERPARTS. This Amendment may be executed in
any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed and delivered shall be deemed to be
an original and all of which taken together shall constitute but one and the
same instrument.
Section 7. GOVERNING LAW. This Amendment shall be governed by, and
construed in accordance with, the laws of the State of New York.
<PAGE> 6
6
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
Borrowers:
AMSCAN INC.
By: /s/ James M. Harrison
------------------------------
Name: James M. Harrison
Title: Vice President
TRISAR INC.
By: /s/ John A. Svenningsen
------------------------------
Name: John A. Svenningsen
Title: President
<PAGE> 7
7
Agent:
THE CHASE MANHATTAN BANK
(successor by merger to The Chase Manhattan
Bank, N.A.)
By: /s/ Carol A. Kornbluth
------------------------------
Carol A. Kornbluth
Vice President
Banks:
THE CHASE MANHATTAN BANK
(successor by merger to The Chase Manhattan
Bank, N.A.)
By: /s/ Carol A. Kornbluth
------------------------------
Carol A. Kornbluth
Vice President
FIRST UNION NATIONAL BANK (as
successor to First Fidelity Bank, N.A.)
By: /s/ John Ritacco
------------------------------
John Ritacco
Senior Vice President
FLEET BANK, N.A.
(for itself and as successor to NatWest Bank,
N.A.)
By: /s/ Neil Platt
------------------------------
Neil Platt
Vice President
<PAGE> 8
Schedule 1.1
Letters of Credit
<TABLE>
<CAPTION>
Issuing Bank Current
SBLC # Beneficiary Amount Expiry Date
- ------ ----------- ------ -----------
<S> <C> <C> <C>
P-262881 The Travelers Companies $450,000 12/31/97
P-263223 Town of Greenburgh $75,000 12/26/96
</TABLE>
<PAGE> 1
Exhibit 4(c)
AMENDMENT NO. 2
Dated as of December 11, 1996
AMENDMENT by and among AMSCAN HOLDINGS, INC., a corporation
organized under the laws of the State of Delaware, AMSCAN INC., a corporation
organized under the laws of the State of New York (for itself and as successor
by merger to Kookaburra USA, Ltd. and Deco Paper Products, Inc.), and TRISAR
INC. (collectively, the "Borrowers" and each, individually, a "Borrower"), each
of the banks parties to The Credit Agreement (as hereinafter defined) (the
"Banks") and THE CHASE MANHATTAN BANK (successor by merger to THE CHASE
MANHATTAN BANK, N.A.), as agent for the Banks (in such capacity, together with
its successors and assigns in such capacity, the "Agent").
PRELIMINARY STATEMENTS:
A. Amscan Inc., Trisar, Inc., the Banks and the Agent have entered
into a Credit Agreement dated as of September 20, 1995, as amended by that
certain Amendment No. 1, dated as of November 14, 1996 (the "Credit Agreement";
the capitalized terms defined therein being used herein as therein defined
unless otherwise defined herein).
B. Amscan Holdings, Inc. was incorporated on October 3, 1996 for the
purpose of becoming the holding company for Amscan Inc., Trisar Inc. and certain
other Affiliates of the Borrowers.
C. Amscan Holdings, Inc. plans to make an initial public offering of
its capital stock substantially in accordance with the terms and conditions of
the Registration Statement on Form S-1 filed with the Securities and Exchange
Commission on November 15, 1996 (the receipt by Amscan Holdings, Inc. of the net
proceeds of said offering hereinafter the "Amscan IPO").
D. The Borrowers, the Banks and the Agent have agreed to amend the
Credit Agreement and certain other Facility Documents as hereinafter set forth.
SECTION 1. Amendments. The Facility Documents are, effective as of
the date of the Amscan IPO and subject to the satisfaction of the conditions
precedent set forth in Section 4 hereof, hereby amended as follows:
<PAGE> 2
2
(a) The terms "Borrowers" and "Borrower" contained in the
First Preamble of the Credit Agreement are amended by adding Amscan Holdings,
Inc., a Delaware corporation, as a Borrower and by deleting Kookaburra USA, Ltd.
and Deco Paper Products, Inc. as Borrowers.
(b) The definition of the term "Change of Ownership" is
deleted from Section 1.1 of the Credit Agreement.
(c) The definition of the term "Shareholder Payments" is
deleted from Section 1.1 of the Credit Agreement.
(d) The definition of the term "Guarantors" contained in
Section 1.1 of the Credit Agreement is amended and restated in full to read as
follows:
"Guarantors" means each Person who delivers a guaranty of all
or any portion the Borrowers' obligations under this Agreement or any
other Facility Document.
(e) The definition of the term "Restricted Payment Allowance"
contained in Section 1.1 of the Credit Agreement is amended and restated in full
to read as follows:
"Restricted Payment Allowance" means, at any date of
determination thereof, for the Borrowers, on a combined basis in
accordance with GAAP,
If such date of determination is prior to the Amscan IPO:
(a) 50% of net profit for the immediately preceding fiscal
year of the Borrowers, reduced by an amount equal to federal and state
income taxes utilizing the highest marginal tax rates for individuals,
plus (b) provided that the Borrowers have not incurred a loss on a
combined basis in the immediately preceding four fiscal quarters, the
unused amount of the Restricted Payment Allowance for the immediately
preceding fiscal year (calculated without giving effect to carryovers from
fiscal years prior to the immediately prior fiscal year), minus (c)
dividends already paid in such fiscal year by the Borrowers pursuant to
Section 7.6, minus (d) the cost of any stock repurchases already made in
such fiscal year by the Borrowers pursuant to Section 7.6, minus (e)
monies already paid in such fiscal year by the Borrowers for investments
pursuant to subsection (h) of Section 7.5, minus (f) Total Consideration
already paid by the Borrowers in such fiscal year on account of any
Acceptable Acquisition pursuant to Section 7.11.
<PAGE> 3
3
If such date of determination is the date of the Amscan IPO or
thereafter:
(a) 50% of net profit (after adjusting for the IPO Payments)
for the immediately preceding fiscal quarter of the Borrowers,
demonstrated to the Bank's satisfaction, plus (b) the unused amount of the
Restricted Payment Allowance for preceding fiscal periods minus (c)
dividends already paid in such fiscal year by the Borrowers pursuant to
Section 7.6, minus (d) the cost of any stock repurchases already made in
such fiscal year by the Borrowers pursuant to Section 7.6, minus (e)
monies already paid in such fiscal year by the Borrowers for investments
pursuant to subsection (h) of Section 7.5, minus (f) Total Consideration
already paid by the Borrowers in such fiscal year on account of any
Acceptable Acquisition pursuant to Section 7.11.
(f) The definition of the term "Pledge Agreements" contained
in Section 1.1 of the Credit Agreement is amended and restated in full to read
as follows:
"Pledge Agreements" means the pledge agreements in the form of
Exhibit E-1 to be delivered by the Borrowers under the terms of this
Agreement.
(g) The definition of the term "EBIT" contained in Section 1.1
of the Credit Agreement is amended and restated in full to read as
follows:
"EBIT" means, for any Person, for any period, (i) operating
earnings before Interest Expense, taxes and extraordinary items for such
Person, plus (ii) administrative fee income received from Amscan
Distributors Canada Ltd., less (iii) such Person's Monthly Accruals,
determined in accordance with GAAP, plus (iv) the IPO Payments, if any.
(h) The definition of the term "EBITDA" contained in Section
1.1 of the Credit Agreement is amended and restated in full to read as
follows:
"EBITDA" means, for any Person, for any period, (i) operating
earnings before Interest Expense, taxes, depreciation, amortization and
extraordinary items for such Person, plus (ii) administrative fee income
received from Amscan Distributors Canada Ltd., less (iii) such Person's
Monthly Accruals, determined in accordance with GAAP, plus (iv) the IPO
Payments, if any.
<PAGE> 4
4
(i) The following new definitions are added in proper
alphabetical order to Section 1.1 of the Credit Agreement:
"Amscan IPO" means the receipt by Amscan Holdings, Inc. of the
net proceeds of an initial public offering of the capital stock of Amscan
Holdings, Inc. substantially in accordance with the terms and conditions
of the Registration Statement on Form S-1 filed with the Securities and
Exchange Commission on November 15, 1996.
"Change of Control" means (i) any Person or two or more
Persons acting in concert shall have acquired beneficial ownership (within
the meaning of Rule 13d-3 of the Securities and Exchange Commission under
the Securities Exchange Act of 1934, as amended) of greater than twenty
percent (20%) of the outstanding shares of voting stock of Amscan
Holdings, Inc., other than John Svenningsen or his heirs; or (ii) during
any period of twelve (12) consecutive months following the Amscan IPO,
individuals who at the beginning of such twelve (12) month period were
directors of Amscan Holdings, Inc., together with any new directors whose
election by the Board of Directors of Amscan Holdings, Inc. was approved
by a majority of the directors then still in office and who are either
directors at the beginning of such period or whose election or nomination
for election was previously so approved, cease for any reason to
constitute a majority of the Board of Directors of Amscan Holdings, Inc.
"Excluded Subsidiaries" shall mean Am-Source, Inc., Amscan
Distributors (Canada) Ltd., Amscan Svenska AB, JCS Realty Corp., SSY
Realty Corp., Amscan Holdings Limited, Amscan (Asia Pacific) Pty. Ltd.,
Amscan Partyartikel GmbH and Amscan de Mexico, S.A. de C.V.
"IPO Payments" shall mean, if the Amscan IPO shall have
occurred and to the extent the following expenses have been incurred and
expensed, the following expenses: (a) the $12,640,000 payment to Gerald C.
Rittenberg in connection with the Amscan IPO, (b) the payment of
$1,000,000 to E. Allan Shook and L. Randall Harris in connection with the
discharge of contractual obligations, and (c) the contribution to the
Employee Stock Ownership Plan of Amscan Holdings, Inc. in the amount of
$3,000,000.
(j) Subsections 6.8(a) and (b) of the Credit Agreement are
amended and restated in full as follows:
(a) as soon as available and in any event within 120 days
after the end of each fiscal year of the Borrowers, a consolidated balance
sheet of Amscan Holdings, Inc. and the other Borrowers as of the end of
such fiscal year and a consolidated income statement and statements of
cash flows and changes in stockholders' equity of Amscan Holdings, Inc.
and the other Borrowers for such fiscal year, all in reasonable detail and
stating in comparative form the respective
<PAGE> 5
5
consolidated figures for the corresponding date and period in the prior
fiscal year and all prepared in accordance with GAAP and as to the
combined statements accompanied by an opinion thereon acceptable to the
Agent and each of the Banks by KPMG Peat Marwick or other independent
accountants of national standing selected by the Borrowers;
(b) as soon as available and in any event, within 45 days
after the end of each of the first three quarters of each fiscal year of
the Borrowers thereafter, a consolidated balance sheet of Amscan Holdings,
Inc. and the other Borrowers as of the end of such quarter and a
consolidated income statement and statements of cash flows and changes in
stockholders' equity, of Amscan Holdings, Inc. and the other Borrowers for
the period commencing at the end of the previous fiscal year and ending
with the end of such quarter, all in reasonable detail and stating in
comparative form the respective consolidated figures for the corresponding
date and period in the previous fiscal year and all prepared in accordance
with GAAP and certified by the President, Treasurer or Chief Financial
Officer of Amscan Holdings, Inc. (subject to year-end adjustments);
(k) The following are added as new Subsections 6.8(k) and (l)
of the Credit Agreement, and the following paragraphs relettered accordingly:
(k) as soon as available after filing the same with the
Securities and Exchange Commission, but in no event later than 45 days
after the end of each of the first three fiscal quarter of the Borrowers,
a true and compete copy of the Form 10-Q of Amscan Holdings, Inc.;
(l) as soon as available after filing the same with the
Securities and Exchange Commission, but in no event later than 100 days
after the end of each fiscal year of the Borrowers, a true and complete
copy of the Form 10-K of Amscan Holdings, Inc.;
(l) Section 6.10 of the Credit Agreement is amended and
restated in full as follows:
Section 6.10. Further Assurances. By January 31, 1997,
negotiate in good faith with the Agent and the Banks to amend this
Agreement and the other Facility Documents as may be reasonably requested
by the Agent or the Banks to address issues arising from (a) the addition
of Amscan Holdings, Inc. as a Borrower, (b) the Amscan IPO, or (c) the
change of the tax status of the Borrowers from S Corporations to C
Corporations.
(m) Section 6.11 of the Credit Agreement is amended and
restated in full as follows:
<PAGE> 6
6
Section 6.11. Additional Security. By January 31, 1997,
executed and deliver a security agreement, a pledge agreement and such
other security documents as the Agent and the Banks may reasonably request
to grant and perfect a first priority security interest in the assets of
Amscan Holdings, Inc. (other than the capital stock of the other
Borrowers) to the Agent, for the ratable benefit of the Banks, as security
for the obligations of the Borrowers under this Agreement and the other
Facility Documents.
(n) Subsection 9.1(r) of the Credit Agreement is amended and
restated in full as follows:
(r) There shall have been a Change in Control of Amscan
Holdings, Inc.;
(o) Schedule 5.9 to the Credit Agreement is hereby replaced
with Schedule 5.9 hereto.
(p) Section 7.6 of the Credit Agreement is amended and
restated in full as follows:
Section 7.6 Dividends. Declare or pay any dividends, purchase,
redeem, retire or otherwise acquire for value any of its capital stock now
or hereafter outstanding, or make any distribution of assets to its
stockholders as such whether in cash, assets or in obligations of such
Borrower, or allocate or otherwise set apart any sum for the payment of
any dividend or distribution on, or for the purchase, redemption or
retirement of any shares of its capital stock, or make any other
distribution by reduction of capital or otherwise in respect of any shares
of its capital stock; or permit any of its Subsidiaries to purchase or
otherwise acquire for value any stock of such Borrower or another such
Subsidiary, except that:
(a) such Borrower may declare and deliver dividends and
make distributions payable solely in common stock of such Borrower;
(b) such Borrower may purchase or otherwise acquire
shares of its capital stock by exchange for or out of the proceeds
received from a substantially concurrent issue of new shares of its
capital stock;
(c) such Borrower may pay other dividends not to exceed
the Restricted Payment Allowance, provided that the Borrowers have
provided the Agent, at least seven (7) days prior to declaring such a
dividend, with their calculation (in form and substance satisfactory to
the Agent) showing that the proposed dividend does not exceed the
Restricted Payment Allowance.
(q) Section 8.2 of the Credit Agreement is amended and
restated in full as follows:
<PAGE> 7
7
Section 8.2 Capital Expenditures. The Borrowers shall not make
or permit to be made Combined Capital Expenditures during any fiscal year
of the Borrowers to exceed the following amounts in the aggregate:
<TABLE>
<CAPTION>
Fiscal Year Combined Capital
----------- ----------------
Expenditures
------------
<S> <C>
1995 $10,000,000
1996 $11,000,000
1997 25% of EBITDA
minus the amount by
which 1996 Combined
Capital Expenditures
exceed $10,000,000,
but not to exceed
$10,000,000
1998 and thereafter 25% of EBITDA, not
to exceed
$10,000,000 annually
</TABLE>
SECTION 2. Release. Effective upon the satisfaction of each of the
following conditions: (i) the filing by or on behalf of Amscan Holdings, Inc. of
a request to the Securities and Exchange Commission to accelerate the
effectiveness of the Registration Statement on Form S-1 filed by Amscan
Holdings, Inc. in connection with the Amscan IPO and (ii) the issuance of shares
of Amscan Inc. common stock and the making of a cash payment to Gerald C.
Rittenberg as contemplated by the Stock Agreement dated October 9, 1996 among
Gerald C. Rittenberg, the Stockholder and Amscan Inc. (the "Release Date"), the
obligations of the Stockholder under the Pledge Agreement delivered by the
Stockholder pursuant to the terms of the Credit Agreement (the "Stockholder
Pledge Agreement") are terminated and the Pledged Shares (as such term is
defined in the Stockholder Pledge Agreement) are released from any Lien in favor
of the Agent and the Banks. The foregoing release (the "Release") is subject to
the following limitations, terms and conditions:
(a) The Release is granted without prejudice to any right the
Agent or any Bank may have, on any future date, to declare the Borrowers to be
out of compliance with any term or provision of the Credit Agreement, other than
for the sale of the Collateral subject to the Stockholder Pledge Agreement.
(b) The Release shall have no effect on any other portions of
the Credit Agreement, all of which shall remain in full force and effect,
including all of the Agent's and the Banks' right and remedies thereunder, all
of which are expressly reserved.
<PAGE> 8
8
(c) The Agent's and the Banks' granting of the Release shall
not be deemed to limit or hinder any rights of the Agent or any Bank under the
Credit Agreement, nor shall it be deemed to create or infer a course of dealing
between the Agent or any Bank and the Borrowers with regard to any provision of
the Credit Agreement.
SECTION 3. Consent. Effective on the Release Date, the Agent and the
Banks hereby consent to the exchange of the shares of the capital stock of the
Borrowers by the Stockholder for capital stock of Amscan Holdings, Inc. (the
"Exchange") (the "Exchange Consent"). Effective as of the date of the Amscan IPO
and subject to the satisfaction of the conditions precedent set forth in Section
4 hereof, the Agent and the Banks hereby consent to the offering of up to
6,152,500 shares of common stock in the Amscan IPO (the "Offering") (the
"Offering Consent" and, together with the Exchange Consent, collectively, the
"Consent"). The Consent is subject to the following limitations, terms and
conditions:
(a) The Consent is granted without prejudice to any right the
Agent or any Bank may have, on any future date, to declare the Borrowers to be
out of compliance with any term or provision of the Credit Agreement, for a
reason other than the Exchange and the Offering as referenced above.
(b) The Consent shall have no effect on any other portions of
the Credit Agreement, all of which shall remain in full force and effect,
including all of the Agent's and the Banks' rights and remedies thereunder, all
of which are expressly reserved.
(c) The Agent's and the Banks' granting of the Consent shall
not be deemed to limit or hinder any rights of the Agent or any Bank under the
Credit Agreement, nor shall it be deemed to create or infer a course of dealing
between the Agent or any Bank and the Borrowers with regard to any provision of
the Credit Agreement.
SECTION 4. Conditions of Effectiveness. This Amendment shall become
effective when, and only when, the Agent shall have received counterparts of
this Amendment duly executed by the Borrowers, the Banks and the Agent, and
Section 1 and the Offering Consent hereof shall become effective when, and only
when, the Agent shall have additionally (i) received all of the following
documents, each document (unless otherwise indicated) being dated the date of
receipt thereof by the Agent (which date shall be the same for all such
documents), in form and substance satisfactory to the Agent and its legal
counsel and (ii) have received evidence satisfactory to it of the occurrence of
the following non-documentary conditions:
(a) Certified copies of (i) the resolutions of the Board of
Directors of each Borrower approving this Amendment and the matters contemplated
hereby, (ii) the Certificate of Incorporation and Bylaws of each Borrower, (iii)
all documents evidencing other necessary corporate action and governmental
approvals, if any, with respect to this Amendment and the matters contemplated
hereby, (iv) the Stock Agreement dated October 9, 1996 among Gerald C.
Rittenberg, the Stockholder and
<PAGE> 9
9
Amscan Inc., and (v) the amended form of registration statement for the Amscan
IPO filed with the SEC on December 12, 1996.
(b) A certificate of the Secretary or an Assistant Secretary
of each Borrower certifying the names and true signatures of the officers of
such Borrower authorized to sign this Amendment and the other documents to be
delivered hereunder.
(c) A favorable opinion of Kurzman & Eisenberg, counsel for
the Borrowers, to the effect that this Amendment has been duly authorized,
executed and delivered by each of the Borrowers and constitutes the legal, valid
and binding obligation of each Borrower, enforceable against each Borrower in
accordance with its terms, and confirming the opinion of McCarthy, Fingar,
Donovan, Drazen & Smith, legal counsel to the Borrowers, furnished as of
September 20, 1995 pursuant to Section 4.1(i) of the Credit Agreement, with
references therein to the Credit Agreement to mean the Credit Agreement as
amended by this Amendment.
(d) A schedule of all of the subordinated debt of the
Borrowers, calculated on a pro forma basis to take into account the Amscan IPO
and the transactions anticipated to be carried out in connection therewith;
(e) A schedule of the Subsidiaries and affiliates of each of
the Borrowers;
(f) The payment of a $10,000 amendment fee to the Agent;
(h) The Amscan IPO shall have occurred on or before January
31, 1997.
(h) An Amended and Restated Promissory Note in favor of each
of the Banks, duly executed and delivered to each such Bank.
(i) A certificate dated as of the date of the Amscan IPO
signed by a duly authorized officer of each Borrower stating that:
(i) The representations and warranties contained in Section 5
hereof and in the Credit Agreement and each other Facility Document
are true and correct on and as of the date of such certificate as
though made on and as of such date, and
(ii) No event has occurred and is continuing which constitutes
a Default or an Event of Default.
SECTION 5 Representations and Warranties of the Borrowers. Each
Borrower represents and warrants as follows:
<PAGE> 10
10
(a) Such Borrower is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction indicated at
the beginning of this Amendment.
(b) The execution, delivery and performance by such Borrower
of this Amendment and the Facility Documents, as amended hereby, to which it is
or is to be a party are within such Borrower's corporate powers, have been duly
authorized by all necessary corporate action and do not contravene (i) such
Borrower's charter or by-laws, (ii) law or any contractual restriction binding
on or affecting such Borrower, or result in, or require, the creation or
imposition of any mortgage, deed of trust, pledge, lien, security interest or
other charge, encumbrance or preferential arrangement of any nature upon or with
respect to any of the properties now owned or hereafter acquired by such
Borrower.
(c) No authorization, approval or other action by, and no
notice to or filing with, any governmental authority or regulatory body is
required for the due execution, delivery and performance by such Borrower of
this Amendment or any of the Facility Documents, as amended hereby, to which it
is or is to be a party.
(d) This Amendment and each of the other Facility Documents as
amended hereby, to which such Borrower is a party constitute legal, valid and
binding obligations of such Borrower enforceable against such Borrower in
accordance with their respective terms.
(e) The Security Agreement constitutes valid and perfected
first priority security interests and liens in and to the Collateral covered
thereby enforceable against all third parties in all jurisdictions and secure
the payment of all obligations of such Borrower under the Facility Documents
(including, without limitation, L/C Credits), as amended hereby, and the
execution, delivery and performance of this Amendment do not adversely affect
the aforesaid security interests and liens of such Security Agreement.
(f) There is no pending or threatened action or proceeding
affecting such Borrower or any of its Subsidiaries before any court,
governmental agency or arbitrator, which may materially adversely affect the
financial condition or operations of such Borrower or any Subsidiary. There is
no pending or threatened action or proceeding affecting such Borrower or any of
its Subsidiaries before any court, governmental agency or arbitrator which
purports to affect the legality, validity or enforceability of this Amendment or
any of the other Facility Documents, as amended hereby.
(g) The pro forma balance sheet and income statement, dated as
of September 30, 1996, calculated to take into effect the Amscan IPO and the
transactions contemplated in connection therewith, are true and correct. Copies
of the pro forma balance sheet and income statement have been provided to the
Banks.
<PAGE> 11
11
(h) John Svenningsen, following the Amscan IPO, will remain
the legal and beneficial owner of a majority of the voting capital stock of
Amscan Holdings, Inc., which will remain the legal and beneficial owner of a
majority of the voting capital stock of Amscan Inc. and Trisar, Inc.
(i) There has been no material adverse change in the business,
management, operations, properties, prospects or condition (financial or
otherwise) of the Stockholder of the Borrowers or their respective subsidiaries
since the end of the last fiscal period reflected in the latest financial
statements provided to the Banks.
SECTION 6. Reference to and Effect on the Facility Documents.
(a) Upon the effectiveness of Sections 1, 2 and 3 hereof, each
reference in the Credit Agreement to "this Agreement," "hereunder," "hereof,"
"herein" or words of like import, and each reference in any Facility Documents
to the Credit Agreement or any other Facility Document, shall mean and be a
reference to the Credit Agreement or such other Facility Document as amended
hereby.
(b) Except as specifically amended above, the Credit
Agreement, the Notes and the other Facility Documents, shall remain in full
force and effect and are hereby ratified and confirmed. Without limiting the
generality of the foregoing, the Security Agreement and all of the Collateral
described therein do and shall continue to secure the payment of all
obligations, indebtedness and liabilities of the Borrowers to the Bank under the
Credit Agreement and the other Facility Documents (including, without
limitation, L/C Credits), as amended hereby.
(c) The execution, delivery and effectiveness of this
Amendment shall not, except as expressly provided herein, operate as a waiver of
any right, power or remedy of the Agent or the Banks under any of the Facility
Documents, nor constitute a waiver of any provision of any of the Facility
Documents.
SECTION 7. Pledge of Shares. Amscan Holdings, Inc. hereby covenants
and agrees that, in the event that (a) the Exchange has taken place and (b) the
Amscan IPO has not occurred on or prior to January 31, 1997, it shall pledge all
of the capital stock of Amscan Inc. and Trisar, Inc. to secure the obligations
of the Borrowers under the Credit Agreement and the other Facility Documents
substantially on the terms and conditions of the Stockholder Pledge Agreement.
SECTION 8. Costs, Expenses and Taxes. The Borrowers jointly and
severally agree to pay on demand all costs and expenses of the Agent in
connection with the preparation, execution and delivery of this Amendment and
the other instruments and documents to be delivered hereunder, including,
without limitation, the reasonable fees and out-of-pocket expenses of counsel
for the Agent and the Banks with respect thereto and with respect to advising
the Agent and the Banks as to its rights and responsibilities hereunder and
thereunder. The Borrowers further jointly and severally agree to pay on
<PAGE> 12
12
demand all costs and expenses, if any (including, without limitation, reasonable
counsel fees and expenses), in connection with the enforcement (whether through
negotiations, legal proceedings or otherwise) of this Amendment and the other
instruments and documents to be delivered hereunder, including, without
limitation, reasonable counsel fees and expenses in connection with the
enforcement of rights under this Section 8. In addition, the Borrowers shall pay
any and all stamp and other taxes payable or determined to be payable in
connection with the execution and delivery of this Amendment and the other
instruments and documents to be delivered hereunder, and agrees to save the
Agent and the Banks harmless from and against any and all liabilities with
respect to or resulting from any delay in paying or omission to pay such taxes.
SECTION 9. Execution in Counterparts. This Amendment may be executed
in any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed and delivered shall be deemed to be
an original and all of which taken together shall constitute but one and the
same instrument.
SECTION 10. Governing Law. This Amendment shall be governed by, and
construed in accordance with, the laws of the State of New York.
<PAGE> 13
13
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be executed by their respective officers thereunto duly authorized, as of the
date first above written.
Borrowers:
AMSCAN HOLDINGS, INC.
By: /s/ John Jordan
--------------------------------
Name: John P. Jordan
Title: Vice President
AMSCAN INC.
By: /s/ John Jordan
--------------------------------
Name: John P. Jordan
Title: Vice President
TRISAR INC.
By: /s/ John Jordan
--------------------------------
Name: John P. Jordan
Title: Vice President
<PAGE> 14
14
Agent:
THE CHASE MANHATTAN BANK
(successor by merger to The Chase Manhattan
Bank, N.A.)
By: /s/ CAROL A. KORNBLUTH
----------------------------------------
Carol A. Kornbluth
Vice President
Banks:
THE CHASE MANHATTAN BANK
(successor by merger to The Chase Manhattan
Bank, N.A.)
By: /s/ CAROL A. KORNBLUTH
----------------------------------------
Carol A. Kornbluth
Vice President
FIRST UNION NATIONAL BANK
(as successor to First Fidelity Bank, N.A.)
By: /s/ MICHAEL CHALIAN
----------------------------------------
Michael Chalian
Senior Vice President
FLEET BANK, N.A.
(for itself and as successor to
NatWest Bank, N.A.)
By: /s/ NEIL PLATT
----------------------------------------
Neil Platt
Vice President
<PAGE> 1
EXHIBIT 5
CUMMINGS & LOCKWOOD
Four Stamford Plaza
P. O. Box 120
Stamford, Connecticut 06904-0120
(203) 327-1700
FAX (203) 351-4534
December 13, 1996
The Board of Directors
Amscan Holdings, Inc.
80 Grasslands Road
Elmsford, New York 10523
Re: Amscan Holdings, Inc. - Registration Statement on
Form S-1 (Registration No. 333-4107)
Gentlemen:
We have acted as special counsel for Amscan Holdings, Inc., a Delaware
corporation (the "Company"), in connection with the issuance and sale by the
Company of up to 6,152,500 shares (the "Shares") of its common stock, $0.10 par
value (the "Common Stock"), to the several underwriters (the "Underwriters") to
be named in Schedule I to the Underwriting Agreement (the "Underwriting
Agreement"), a copy of the form of which has been filed as Exhibit 1 to the
Registration Statement on Form S-1 (Registration No. 333-14107), as amended by
Amendment Nos. 1 and 2 thereto, of the Company (as so amended, the "Registration
Statement").
We have examined originals, or copies certified or otherwise identified
to our satisfaction, of such agreements, documents, certificates and other
statements of government officials and corporate officers and representatives
and such other documents as we have deemed relevant and necessary as a basis for
the opinions expressed herein, including the following: (a) the Certificate of
Incorporation of the Company in the form filed as Exhibit 3(a) to the
Registration Statement; (b) the By-Laws of the Company in the form filed as
Exhibit 3(b) to the Registration Statement; (c) the Registration Statement; (d)
<PAGE> 2
The Board of Directors -2- December 13, 1996
Amscan Holdings, Inc.
resolutions adopted by the Board of Directors of the Company by unanimous
consent dated as of November 27, 1996; and (e) the Underwriting Agreement.
In our examination of the foregoing agreements, instruments,
certificates and other documents, we have assumed that: (a) the statements made
therein are accurate and complete; (b) the signatures on documents and
instruments submitted to us as originals are authentic; and (c) documents
submitted to us as copies of original documents conform with the originals
thereof. For purposes hereof, we have also assumed that: (a) the agreements
between the Company and the Underwriters will be in substantially the form of
the Underwriting Agreement; (b) the Pricing Committee of the Board of Directors
of the Company will approve the public offering price to be included in the
Registration Statement (the "Public Offering Price"); and (c) the Public
Offering Price for each of the shares will be greater than the par value
thereof.
Based upon the foregoing, we are of the opinion that the Shares have
been duly authorized for issuance and sale, and when sold pursuant to the terms
and conditions of the Underwriting Agreement, will be validly issued, fully paid
and nonassessable.
No opinion is expressed herein other than under the General Corporation
Law of the State of Delaware.
We hereby consent to the use of our name under the caption "Validity of
Common Stock" in the Prospectus included in the Registration Statement and to
the filing of this opinion as Exhibit 5 thereto.
Very truly yours,
/s/ CUMMINGS & LOCKWOOD
<PAGE> 1
Exhibit 10(h)
AMSCAN HOLDINGS, INC.
1996 STOCK OPTION PLAN FOR KEY EMPLOYEES
1. OBJECTIVE OF THE PLAN.
The 1996 Stock Option Plan for Key Employees (the "Plan") is intended
to encourage ownership of the Common Stock of Amscan Holdings, Inc. (the
"Corporation") by key employees of the Corporation and any subsidiary
corporation of the Corporation now existing or hereafter formed or acquired and
to provide incentives for them to put forth maximum efforts for its successful
operations. By extending to key employees the opportunity to acquire proprietary
interests in the Corporation and to participate in its success, the Plan may be
expected to benefit the Corporation and its stockholders by making it possible
for the Corporation to attract and retain the best available talent and by
rewarding key employees for their part in increasing the value of the
Corporation's stock.
The Options (as hereinafter defined) offered pursuant to the Plan are a
matter of separate inducement and are not in lieu of any salary or other
compensation for the services of any employee or director.
The Corporation, by means of the Plan, seeks to retain the services of
persons now holding key positions and to secure the services of persons capable
of filling such positions.
The Options granted under the Plan are intended to be either Incentive
Stock Options (as hereinafter defined) or options that do not meet the
requirements for Incentive Stock Options, but the Company makes no warranty as
to the qualification of any Option as an Incentive Stock Option.
2. DEFINITIONS.
As used herein, the following terms have the meanings hereinafter set
forth unless the context clearly indicates to the contrary:
2.1. "1934 Act" shall mean the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
2.2. "Board of Directors" shall mean the board of directors of the
Corporation.
2.3. "Cause" shall mean incompetence, gross negligence,
<PAGE> 2
2
insubordination, conviction of a felony, or willful misconduct by an employee of
the Corporation as determined in good faith by the Corporation.
2.4. "Change in Control" shall have the meaning specified in Section 9
hereof.
2.5. "Closing Date" shall mean the closing of the sale of shares of
Common Stock contemplated by the Corporation's Registration Statement on Form
S-1 (No. 333-14107), as such Registration Statement may be amended (as so
amended, the "Registration Statement").
2.6. "Code" shall mean the Internal Revenue Code of 1986, as amended.
2.7. "Committee" shall mean the committee appointed in accordance with
Section 4 to administer this Plan.
2.8. "Common Stock" shall mean the Common Stock, par value $0.10 per
share, of the Corporation.
2.9. "Continuous Employment" shall mean continuous regular employment
by the Corporation or by one of its subsidiaries or an uninterrupted chain of
continuous regular employments by the Corporation and/or one or more of its
subsidiaries. A leave of absence granted in accordance with the Corporation's or
its subsidiaries' usual procedures (such as those attributable to illness,
military obligations or governmental service) shall not be considered a
termination of employment nor an interruption of Continuous Employment
hereunder, and an employee who is granted such a leave of absence shall be
considered to be continuously employed during the period of such leave.
2.10. "Effective Date" shall have the meaning specified in Section 18
hereof.
2.11. "Fair Market Value" of the Common Stock on the Closing Date shall
be equal to the initial public offering price per share of Common Stock sold
pursuant to the Registration Statement. In all other cases, Fair Market Value
shall be determined by the Committee in good faith as of the last business day
for which the prices or quotes described in this sentence are available
preceding the date such Option is granted and shall mean: (i) the average on
that date of the high and low prices of the Common Stock on the principal
national securities exchange on which the Common Stock is traded, if the Common
Stock is then traded on a national securities exchange; (ii) the last reported
sale price on that date of the Common Stock reported on The Nasdaq Stock Market,
Inc., if the Common Stock is not then traded on a national securities exchange;
(iii) the closing bid price (or average of bid prices) last quoted on that date
by an established quotation service for over-the-counter securities, if the
Common Stock is
<PAGE> 3
3
not reported on a national securities exchange or The Nasdaq Stock Market, Inc.
or (iv) if none of clauses (i), (ii) and (iii) apply, the amount determined in
good faith by the Committee. For purposes of the Plan, the determination by the
Committee of the fair market value of a Share shall be conclusive.
2.12. "Incentive Stock Options" shall mean those Options granted
hereunder which are incentive stock options as defined in Section 422(b) of the
Code and Treasury Regulations issued pursuant thereto.
2.13. "Incumbent Board" shall have the meaning specified in Section 9
hereof.
2.14. "Non-Qualified Stock Options" shall mean those Options granted
hereunder which are not Incentive Stock Options.
2.15. "Option" shall mean an option to purchase Common Stock granted
pursuant to the provisions of this Plan.
2.16. "Option Agreement" shall mean the agreement between the Optionee
and the Corporation setting forth the terms and conditions of an Option.
2.17. "Optionee" shall mean an individual who receives an Option
pursuant to this Plan.
2.18. "Ten Percent Stockholder" shall mean an individual who owns,
within the meaning of Section 422(b)(6) of the Code, stock possessing more than
ten percent (10%) of the total combined voting power of all classes of stock of
the Corporation or of any subsidiary corporation or parent corporation of the
Corporation. In determining stock ownership of an employee, the rules of Section
424(d) of the Code shall be applied, and the Committee may rely on
representations of fact made to it by the employee and believed to be true. As
used in this Plan, the terms "subsidiary corporation" and "parent corporation"
shall be interpreted in accordance with Sections 424(f) and 424(e) of the Code,
respectively.
2.19. "Termination Date" shall have the meaning specified in Section 18
hereof.
3. STOCK RESERVED FOR THE PLAN.
Two Million (2,000,000) shares of the authorized but unissued Common
Stock are reserved for issue and may be issued upon exercise of Options granted
under the Plan.
<PAGE> 4
4
In lieu of such unissued shares, the Corporation may, in its
discretion, transfer to an Optionee, upon the exercise of Options, reacquired
shares or shares bought in the market for the purposes of the Plan, provided
that (subject to the provisions of Section 15 (Adjustments Upon Changes in
Capitalization)) the total number of Options which may be granted and shares
which may be sold pursuant to Options granted under the Plan shall not exceed
Two Million (2,000,000).
If any Options granted under the Plan shall for any reason terminate or
expire without having been exercised or vested in full, the Common Stock not
issued or delivered under such Options shall be available again for the purposes
of the Plan.
4. ADMINISTRATION OF THE PLAN.
4.1. The Board of Directors shall appoint a Committee to administer the
Plan; provided, however, that following the Closing Date, the Committee shall be
composed of at least two (2) directors who are Non-Employee Directors (as
defined in Rule 16b-3 under the 1934 Act, as such rule became effective August
15, 1996).
4.2. The Committee shall have plenary authority in its discretion, but
subject to the express provisions of the Plan, to determine: Optionees, the time
or times at which Options shall be granted, the number of shares to be covered
by each Option, the purchase price of the Common Stock covered by each Option,
and whether Options shall be Incentive Stock Options, Non-Qualified Stock
Options, or both.
4.3. The Committee shall further have plenary authority at its
discretion to interpret the Plan, to prescribe, amend and rescind rules and
regulations relating to it; to determine the terms (which need not be identical)
of Option Agreements executed and delivered under the Plan, including such terms
and provisions as shall be requisite in the judgment of the Committee to conform
to any change in any law or regulation applicable thereto and to make all other
determinations deemed necessary or advisable for the administration of the Plan.
The Committee's determination on the foregoing matters shall be conclusive.
4.4. The Committee may employ such legal counsel, consultants and
agents as it may deem desirable for the administration of the Plan and may rely
upon any opinion or computation received from any such legal counsel, consultant
or agent. Expenses incurred by the Board of Directors or the Committee in the
engagement of such counsel, consultant or agent shall be paid by the Company. No
member or former member of the Board of Directors or the Committee shall be
liable for any action or determination made in good faith with respect to the
Plan or any option granted hereunder.
<PAGE> 5
5
5. ELIGIBILITY; FACTORS TO BE CONSIDERED IN GRANTING OPTIONS.
5.1. Optionees shall be such key employees of the Corporation as the
Committee, in its sole discretion, shall determine. An Optionee may be any
person who, at the time the Option is granted, is a regular, salaried employee
(which term shall include officers and directors) of the Corporation or its
subsidiaries. A director of the Corporation who is not also a regular, salaried
employee of the Corporation will not be eligible to receive an Option. Pursuant
to Section 422 of the Code, no Incentive Stock Options may be granted to an
individual who, immediately after such Option is granted, is a Ten Percent
Stockholder unless (a) the option price is at least 110% of the Fair Market
Value of such stock on the date of grant and (b) the Option may not be exercised
more than 5 years after the date of grant.
5.2. In determining the Optionees, the number of shares of Common Stock
to be covered by each Option, the vesting period of any Option, the term of any
Option, and whether any such Option shall be an Incentive Stock Option, a
Non-Qualified Stock Option, or both, the Committee shall take into account the
duties of the respective employees, their present and potential contributions to
the success of the Corporation, and such other factors as the Committee shall
deem relevant in connection with accomplishing the purposes of the Plan. An
existing Optionee may be granted and hold an additional Option or Options if the
Committee shall so determine.
6. OPTION PRICE.
The purchase price of Common Stock covered by each Option shall be
determined by the Committee but shall not be less than 100% (or 110% in the case
of an Incentive Stock Option granted to a Ten Percent Stockholder pursuant to
Section 422(c)(5) of the Code) of the Fair Market Value of the Common Stock at
the time the Option is granted.
7. TERM OF OPTIONS.
The term of each option shall be for such period as the Committee shall
determine but, notwithstanding the foregoing, the term of no option shall be
more than ten (10) years from the date of granting thereof (or five (5) years
from the date of granting of the option in the case of an incentive stock option
granted to a Ten Percent Stockholder pursuant to Section 422(c)(5) of the Code).
8. EXERCISE OF OPTIONS.
8.1. The method of exercise of Options shall be prescribed by the
Committee; provided, however, that, if no other schedule is prescribed by the
Committee, one-quarter (25%) of the total number of shares of Common Stock
covered by an Option granted to an employee of the Corporation or its
subsidiaries shall become exercisable upon such employee's completion of one
year of Continuous Employment with the
<PAGE> 6
6
Corporation or its subsidiaries after the grant of the Option; thereafter, an
additional one-quarter (25%) of the total number of shares of Common Stock
covered by the Option shall become exercisable upon such employee's completion
of two, three and four years of Continuous Employment with the Company or its
subsidiaries, respectively. Once an Option or part thereof becomes exercisable,
it shall remain exercisable until expiration of the Option, unless otherwise
specified by the Committee.
8.2. Unless otherwise provided in the Option Agreement, a holder of an
Option may purchase all, or from time to time any part of, the shares which the
Optionee has become entitled to purchase in accordance with the terms of the
Option by written notice delivered to the Corporation; provided, however, that
an Option shall not be exercised as to fewer than fifty (50) shares, or the
remaining shares covered by the Option if fewer than fifty (50), at any one
time.
8.3. The purchase price of the shares as to which an Option shall be
exercised shall be paid in full at the time of exercise at the election of the
holder of an Option:
(a) in cash or currency of the United States of America;
(b) by tendering to the Corporation shares of the Corporation's
Common Stock, then owned by the holder, having a Fair Market Value equal to the
cash exercise price applicable to the purchase price of the shares as to which
an Option is being exercised; or
(c) partly in cash and partly in shares of the Corporation's
Common Stock valued at Fair Market Value.
Fractional shares of Common Stock will not be issued. Notwithstanding the
foregoing, the Committee shall have the right to modify, amend or cancel the
provisions of clauses (b) and (c) above at any time upon prior notice to the
holders of Options. Except as provided in Sections 10 (Agreement to Serve) and
11 (Nontransferability of Options) hereof, no Option may be exercised at any
time except by an Optionee who is then a regular employee of the Corporation.
8.4. Except as otherwise provided under the Code, to the extent that
the aggregate Fair Market Value of stock with respect to which Incentive Stock
Options are exercisable for the first time by an employee during any calendar
year (under all stock option plans of the Corporation) exceeds $100,000, such
Options shall be treated as Non-Qualified Stock Options. For purposes of this
limitation, (i) the Fair Market Value of stock is determined as of the time the
Option is granted and (ii) the limitation will be applied by taking into account
Options in the order in which they were granted.
<PAGE> 7
7
9. ACCELERATED EXERCISE.
Notwithstanding any other provision of this Plan or any Option granted
hereunder, any Option granted hereunder and then outstanding shall become
immediately exercisable in full: (i) in the event a tender offer or exchange
offer is made by any "person" within the meaning of Section 14(d) of the 1934
Act or (ii) in the event of a Change in Control (as hereinafter defined);
provided, however, that if in the opinion of counsel to the Corporation the
immediate exercisability of such Option, when taken into consideration with all
other "parachute payments" as defined in Section 280G(b) of the Code, would
result in an "excess parachute payment" as defined in such section, such Option
shall not become immediately exercisable, except as and to the extent the
Committee in its discretion shall otherwise determine. For purposes of this
Section 9, a "Change in Control" shall have occurred if:
(a) any "person" within the meaning of Section 14(d) of the 1934
Act (other than any person who is the beneficial owner of more than 25%
of the Common Stock on the Closing Date) becomes the "beneficial owner"
as defined in Rule 13d-3 thereunder, directly or indirectly, of more
than 25% of the Common Stock;
(b) any "person" acquires by proxy or otherwise the right to vote
more than 25% of the Common Stock for the election of directors, other
than solicitation of proxies by the Incumbent Board, for any merger or
consolidation of the Corporation or for any other matter or question;
(c) during any two-year period, individuals who constitute the
Board of Directors of the Corporation (the "Incumbent Board") as of the
beginning of the period cease for any reason to constitute at least a
majority thereof, provided that any person becoming a director during
such period whose election or nomination for election by the
Corporation's stockholders was approved by a vote of at least
three-quarters of the Incumbent Board (either by a specific vote or by
approval of the proxy statement of the Corporation in which such person
is named as a nominee for director without objection to such
nomination) shall be, for purposes of this clause (c), considered as
though such person were a member of the Incumbent Board; or
(d) the Corporation's stockholders have approved the sale of all
or substantially all of the assets of the Corporation.
The Committee may provide for the acceleration of the vesting of
Options under such other circumstances as the Committee shall determine in its
discretion.
The Committee may adopt such procedures as to notice and exercise as
may be necessary to effectuate the acceleration of the exercisability of Options
as described above.
<PAGE> 8
8
10. AGREEMENT TO SERVE.
Each Optionee shall agree, as one of the terms of the Option Agreement
and during the course of employment by the Corporation or its subsidiaries, to
devote such Optionee's entire time, energy and skill to the service of the
Corporation and the promotion of its interests, subject to vacations, sick leave
and other absences in accordance with the regular policies of the Corporation or
its subsidiaries. If an Optionee shall at any time not be an employee of the
Corporation or one of its subsidiaries, the Option shall at once terminate
subject to possible exercise as provided in Section 12 (Termination of
Employment). Nothing in this Plan or in any Option granted pursuant to this Plan
shall constitute an obligation for the Company or any subsidiary to continue the
employment of the Optionee.
11. NONTRANSFERABILITY OF OPTIONS.
An Option granted under the Plan shall not be transferable otherwise
than by will or the laws of descent and distribution or pursuant to a qualified
domestic relations order (as defined in the Code), and an Option may be
exercised, during the lifetime of an Optionee, only by the Optionee.
12. TERMINATION OF EMPLOYMENT.
12.1. Options granted under the Plan shall not be affected by any
change of duties or position so long as the Optionee continues to be an employee
of the Corporation or one of its subsidiaries. In the event that the employment
of an Optionee shall be terminated (other than by reason of retirement,
disability or death) such Option may, subject to the provisions of Sections 8
(Exercise of Options), 10 (Agreement to Serve) and 13 (Retirement, Disability or
Death), be exercised, to the extent that the Optionee was entitled to do so at
the date of termination of employment unless the Committee otherwise determines,
at any time within thirty (30) days after such termination, but in no event
after the expiration of the term of the Option unless the Committee otherwise
determines.
12.2. Notwithstanding the foregoing and except as otherwise provided by
the Committee, in the event an Optionee is discharged for Cause, the unexercised
portion of an Option shall terminate immediately. If the Optionee has exercised
all or part of an Option within fifteen (15) days of notice of discharge for
Cause and the Corporation has not yet delivered Common Stock pursuant to such
exercise, such exercise shall be deemed invalid and any purchase price tendered
by the Optionee for Common Stock shall be refused or, if previously paid, shall
be returned to the Optionee.
<PAGE> 9
9
13. RETIREMENT, DISABILITY OR DEATH.
13.1. If an Optionee shall retire from the Corporation at normal
retirement date pursuant to any pension plan provided by the Corporation or its
subsidiaries, or if such retirement is earlier than the Optionee's normal
retirement date and such retirement is with the prior consent of the
Corporation, then notwithstanding the provisions of Sections 8 (Exercise of
Options) and 10 (Agreement to Serve), such Optionee may exercise an Option in
full, without regard to the period of Continuous Employment after the Option was
granted, at any time within 90 days after such retirement or for such other
period as may be specified by the Committee, but in no event after the
expiration of the term of the Option.
13.2. If the employment of any Optionee shall terminate by reason of
the Optionee's disability (within the meaning of Section 22(e)(3) of the Code)
and while such Optionee is entitled to exercise such Option as herein provided,
such Optionee shall have the right to exercise such Option, to the extent not
theretofore exercised, in respect of any or all such number of shares of Common
Stock which such Optionee would have been entitled to purchase under the Option
at the date of such termination of such employment, at any time up to and
including 90 days after the date of such termination or for such other period as
may be specified by the Committee, but in no event after the expiration of the
term of the Option.
13.3. If an Optionee shall die while employed by the Corporation or any
of its subsidiaries or during either the 90-day period specified in Section 13.1
or the 90-day period specified in Section 13.2 hereof, such Option may be
exercised, subject to the provisions of Section 8 (Exercise of Options) hereof,
to the extent that the Optionee was entitled to do so at the date of death
unless otherwise determined by the Committee, by the representative of the
Optionee's estate or other person at the time entitled by law to exercise such
Option, at any time within such period (not exceeding one year after the
Optionee's death or for such other period as may be specified by the Committee)
as shall be prescribed in the Option Agreement, but in no event after the
expiration of the term of the Option.
13.4. Notwithstanding the provisions of Sections 12.1, 12.2, 13.1, 13.2
or 13.3 hereof, the Committee shall be entitled to prescribe other exercise
periods for an Option, but in no event shall any Option be exercisable after the
expiration of the term of the Option.
14. NO LOANS TO HOLDERS OF OPTIONS.
Neither the Corporation, any company with which it is affiliated, nor
any of its subsidiaries may directly or indirectly lend money to any person for
the purpose of assisting such person to acquire or carry shares of Common Stock
issued upon the exercise of Options.
<PAGE> 10
10
15. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION.
In the event of any change in the outstanding shares of Common Stock
through merger, consolidation, reorganization, recapitalization, stock dividend,
stock split, split-off, spin-off, combination of shares, exchange of shares, or
other like change in the capital structure of the Corporation, an adjustment
shall be made to each outstanding Option such that each such Option shall
thereafter be exercisable for such securities, cash and/or other property as
would have been received in respect of the shares of Common Stock subject to
such Option had such Option been exercised in full immediately prior to such
change, and such an adjustment shall be made successively each time any such
change shall occur. The term "Common Stock" shall after any such change refer to
the securities, cash and/or property then receivable upon exercise of an Option.
In addition, in the event of any such change, the Committee shall make any
further adjustment as may be appropriate to the maximum number of shares of
Common Stock which may be acquired under the Plan pursuant to the exercise of
Options and the number of shares of Common Stock and price per share subject to
outstanding Options as shall be equitable to prevent dilution or enlargement of
rights under such Options, and the determination of the Committee as to these
matters shall be conclusive. Notwithstanding the foregoing, (i) each such
adjustment with respect to an Incentive Stock Option shall comply with the rules
of Section 424(a) of the Code and (ii) in no event shall any adjustment be made
which would render any Incentive Stock Option granted hereunder not an incentive
stock option for purposes of Section 422 of the Code without the consent of the
Optionee holding such Incentive Stock Option.
16. SATISFACTION OF WITHHOLDING TAXES.
The Corporation may require an Optionee exercising a Non-Qualified
Stock Option granted hereunder, or disposing of Shares acquired pursuant to the
exercise of an Incentive Stock Option in a disqualifying disposition (within the
meaning of Section 421(b) of the Code), to reimburse the corporation that
employs such Optionee for any taxes required by any government to be withheld or
otherwise deducted and paid by such corporation in respect of the issuance or
disposition of such Shares. In lieu thereof, the corporation that employs such
Optionee shall have the right to withhold the amount of such taxes from any
other sums due or to become due from such corporation to the Optionee upon such
terms and conditions as the Committee shall prescribe. The corporation that
employs such Optionee may, in its discretion, hold the stock certificate to
which such Optionee is entitled upon the exercise of an Option as security for
the payment of such withholding tax liability, until cash sufficient to pay that
liability has been accumulated. In addition, the Corporation shall be authorized
to effect any such withholding upon exercise of a Non-Qualified Stock Option by
retention of Shares deliverable upon such exercise having a Fair Market Value at
the date of exercise which is equal to the amount to be withheld.
<PAGE> 11
11
17. RIGHT TO CONTINUED EMPLOYMENT.
Nothing in the Plan or in any Option Agreement shall confer upon any
employee the right to continue in the employ of the Corporation or any of its
subsidiaries or interfere with the right of the Corporation or any such
subsidiary to terminate the employment of such employee at any time.
18. TIME OF GRANTING OPTIONS.
Nothing in the Plan or in any resolution to be adopted by the Board of
Directors or the holders of Common Stock of the Corporation shall constitute the
granting of an Option, which shall be deemed to have been granted only on the
date on which the identity of the Optionee and the terms of the Option are
determined by the Committee. Except as provided in Sections 19 and 23, the
Corporation may, from time to time during the period beginning on the date (the
"Effective Date") the Plan is adopted by the Board of Directors and ending on
the date ten (10) years thereafter (the "Termination Date"), grant to certain
key employees of the Corporation or any of its subsidiaries now existing or
hereafter formed or acquired Options under the terms herein set forth.
19. TERMINATION AND AMENDMENT OF THE PLAN.
The Board of Directors may at any time prior to the Termination Date
terminate the Plan or make such modification or amendment of the Plan as it
shall deem advisable; provided, however, that except as provided in Section 15
(Adjustments Upon Changes in Capitalization), no amendment may be made without
approval by the holders of Common Stock if such amendment would: (a) increase
the maximum number of shares for which Options may be granted under the Plan,
either in the aggregate or to any individual, (b) change the manner of
determining the minimum option prices, (c) extend the period during which
Options may be granted or extend the period during which an Option may be
exercised beyond the maximum term provided in Section 7 (Term of Options) or (d)
amend the requirements as to the class of employees eligible to receive Options.
No termination, modification or amendment of the Plan may, without the consent
of an Optionee, adversely affect the rights of such Optionee.
20. GOVERNMENT REGULATIONS.
The Plan, the granting and exercising of Options hereunder and the
obligation of the Corporation to issue, sell and deliver shares, as applicable,
under such Options, shall be subject to the effectiveness of the Registration
Statement and to the approval of any governmental authority required in
connection with the authorization, issuance or sale of such shares, including
any applicable Blue Sky laws.
<PAGE> 12
12
21. NO RIGHTS IN OPTION STOCK
No Optionee shall have any rights as a stockholder with respect to
shares of Common Stock of the Corporation as to which the Option shall not have
been exercised and payment made as herein provided, and an Optionee shall have
no rights with respect to such shares of Common Stock not expressly conferred by
the Plan.
22. EFFECTIVE DATE.
The Plan shall become effective on the Effective Date; provided,
however, that if the Plan is not approved by a vote of the stockholders of the
Company at an annual meeting or any special meeting or by unanimous consent
within twelve (12) months before or after the Effective Date, the Plan and any
Options granted under the Plan shall terminate.
23. GOVERNING LAW.
The validity and construction of the Plan and the instruments
evidencing Options shall be governed by the laws of Delaware.
<PAGE> 1
Exhibit 10(l)
TAX INDEMNIFICATION AGREEMENT
This Indemnification Agreement is made and entered into as of
December __, 1996 between Amscan Holdings, Inc., a Delaware corporation
("Amscan"), and John A. Svenningsen ("Svenningsen").
WHEREAS, as of the date hereof, Amscan has acquired all of the
business operations of Amscan Inc., Am-Source, Inc., JCS Realty Corp. and SSY
Realty Corp. (individually, a "Subchapter S Company" and, collectively, the
"Subchapter S Companies");
WHEREAS, the Subchapter S Companies elected under Section 1362
of the Internal Revenue Code of 1986, as amended (the "Code"), to be treated and
operated as Subchapter S corporations;
WHEREAS, Svenningsen was for a number of years the sole
shareholder of Amscan Inc., JCS Realty Corp. and SSY Realty Corp. and since 1993
owned a 50% interest in Am-Source, Inc.;
NOW, THEREFORE, in consideration of the premises and mutual
provisions hereinafter set forth, the parties hereto hereby agree as follows:
Article 1. AMSCAN INDEMNITY. Amscan will indemnify svenningsen
for any United States Federal income tax liability, to the extent such liability
is attributable to a claim by the Internal Revenue Service that Svenningsen's
income with respect to his ownership of stock in any of the Subchapter S
Companies for any taxable year exceeds the income reported to Svenningsen by a
Subchapter S Company on its Internal Revenue Service Form K-1 for such taxable
year and for any United States Federal income tax liability of Svenningsen in
respect of payments to Svenningsen pursuant to this Article 1; provided,
however, that Amscan's obligation to indemnify Svenningsen shall be limited to
taxes on income which create a tax benefit to any of the Subchapter S Companies
(whether by reason of deduction, amortization, credit or otherwise) for a
taxable year(s) which end(s) after closing.
Article 2. SVENNINGSEN INDEMNITY. Svenningsen will indemnify
Amscan for Amscan's United States Federal income tax liability resulting from a
claim by any taxing authority that a Subchapter S Company was not properly
treated as a Subchapter S corporation for any period in which such Subchapter S
Company filed a tax return on which it claimed that it was properly treated as a
Subchapter S corporation; provided, however, that Svenningsen's obligation to
indemnify Amscan shall be limited to the amount that Svenningsen would be
entitled to receive as a refund of United States
<PAGE> 2
2
Federal income taxes previously paid with respect to his share of income
generated by a Subchapter S Company..
Article 3. PROCEDURES RELATING TO INDEMNIFICATION. If notice
of a pending or threatened audit is not given to the indemnifying party promptly
after receipt of correspondence from any taxing authority, or in reasonable
detail to apprise the indemnifying party of the nature of the proposed
adjustments, such failure to provide notice promptly shall not relieve the
indemnifying party of its obligations under this agreement, except to the extent
that the failure to notify timely actually prejudices the indemnifying party's
ability to contest such matter. With respect to any audit, the indemnifying
party shall control all proceedings taken solely in connection with such audit
(including, without limitation, selection of and payment for counsel reasonably
acceptable to indemnitee) and, without limiting the foregoing, may in its sole
discretion pursue or forego any and all administrative appeals, proceedings,
hearings and conferences with any taxing authority with respect thereto, and
may, in its sole discretion, either pay the tax claimed and sue for a refund
where applicable law permits such refund suits or contest the audit adjustments
in any permissible manner; provided, however, that if (i) the results of such
proceedings, suit, contest, claim, hearing, compromise or proposed settlement
could reasonably be expected to have a material adverse effect on the assets,
business, operations or financial condition of Amscan or Svenningsen, or their
ability to treat any income or losses in a particular manner for tax calculation
purposes for taxable periods ending after the closing of the exchange of certain
shares of capital stock owned by Svenningsen for shares of Common Stock of
Amscan or (ii) any such proceeding, suit, contest, claim, hearing, compromise or
proposed settlement or procedure involves taxes other than taxes subject to
indemnification, the parties hereto shall consult and mutually agree on a
reasonable good faith basis upon all aspects of the conduct of such matters. The
indemnitee and the indemnifying party shall cooperate in contesting any audit,
which cooperation shall include, without limitation, the retention and provision
to the indemnifying party of records and information which are reasonably
relevant to such audit and making employees available on a mutually convenient
basis to provide additional information or explanation of any material provided
hereunder or to testify at proceedings relating to such audit.
Article 4. GOVERNING LAW. This Agreement shall be governed by
and construed in accordance with the laws of the State of New York, without
giving effect to principles of conflicts of laws.
Article 5. NOTICES. All notices or other communications
provided for under this Agreement shall be given in writing and shall be
delivered personally or sent by post, telex or facsimile transmission to the
other party at the following address or to such other address as to which a
party has given notice as provided herein.
<PAGE> 3
3
If to Amscan:
Amscan Holdings, Inc.
80 Grasslands Road
Elmsford, New York 10523
If to Svenningsen:
John A. Svenningsen
c/o Amscan Holdings, Inc.
80 Grasslands Road
Elmsford, New York 10523
Article 6. ASSIGNMENT. Except as otherwise specifically
provided herein, this Agreement and any rights and obligations hereunder may not
be assigned by either party without the prior written approval of the other
party, and any attempted assignment not in compliance with this Article shall be
void and of no effect.
Article 7. COSTS. In any proceeding to enforce any rights
under this Agreement by legal proceedings or otherwise, the prevailing party
shall be reimbursed by the defaulting party for all of the costs and expenses of
the prevailing party in pursuing such proceeding, including, without limitation,
reasonable attorneys' or solicitors' fees.
Article 8. PARTIES NOT PARTNERS. Nothing contained in this
Agreement shall constitute a partnership or other agency agreement between the
parties hereto or their respective subsidiaries or any of them, nor shall
anything contained in this Agreement give any of the parties hereto or any of
the respective subsidiaries the right to bind, or pledge the credit of, any of
the other parties hereto or any of their respective subsidiaries.
Article 9. ANNUAL REVIEW. This Agreement may be amended by
mutual consultation between the parties, evidenced in a writing signed by both
parties, and the parties agree to engage in mutual consultation in good faith
during each annual period from the date hereof at the request of any party to
maintain in this Agreement the principles of fairness and equity, and to amend
this Agreement accordingly.
Article 10. SEVERABILITY. If any provision in this Agreement
is found by any court or administrative body of competent jurisdiction to be
invalid or unenforceable, the invalidity or unenforceability of such provision
shall not affect the other provisions of this Agreement and all provisions not
affected by such invalidity or unenforceability shall remain in full force and
effect unless the severance of the invalid or unenforceable provision would
unreasonably frustrate the commercial purposes of this Agreement. The parties
hereby agree to attempt to substitute for any invalid or unenforceable provision
a
<PAGE> 4
4
valid or enforceable provision which achieves to the greatest extent possible
the economic objectives of the invalid or unenforceable provision.
Article 11. WAIVER. The waiver by either party of a breach or
default of any of the provisions of this Agreement by the other party shall not
be construed as a waiver of any succeeding breach of the same or other
provisions nor shall any delay or omission on the part of either party to
exercise or avail itself of any right, power or privilege that it has or may
have hereunder operate as a waiver of any breach or default by the other party.
Article 12. ENTIRE AGREEMENT. This Agreement constitutes the
entire and only Agreement between the parties hereto relating to the subject
matter hereof and overrides and supersedes any prior arrangements or oral
discussions and shall not be modified except in writing by agreement between the
parties.
IN WITNESS WHEREOF, the parties have caused this Agreement to
be executed and delivered as of the day and year first above written.
AMSCAN HOLDINGS, INC.
By: ___________________________________
Name:
Title:
___________________________________
John A. Svenningsen
<PAGE> 1
Exhibit 10(n)
MASTER LEASE PURCHASE AGREEMENT
THIS AGREEMENT is entered into the 21st day of November, 1995
between METLIFE CAPITAL CORPORATION ("Lessor") whose address is 10900 N.E. 8th
Street, mailing address C-97550, Bellevue, Washington 98009 and AMSCAN INC., a
New York Subchapter "S" corporation ("Co-Lessee"), DECO PAPER PRODUCTS, INC., a
Kentucky corporation ("Co-Lessee"), KOOKABURRA USA, LTD., a New York corporation
("Co-Lessee") and TRISAR, INC., a California corporation ("Co-Lessee")
("Lessee") whose address is (addresses as per the attached).
Lessor and Lessee from time to time may enter into written
agreements in the form of "Lease Purchase Addenda" for the leasing of equipment
by Lessor to Lessee. To facilitate such transactions, Lessor and Lessee are
entering into this Master Lease Purchase Agreement (the "Master Lease"), the
terms and provisions of which shall be incorporated by reference in each such
Lease Purchase Addendum, and they MUTUALLY AGREE AS FOLLOWS:
1. Lease Purchase Addendum
If Lessor agrees to lease equipment when requested by Lessee,
the parties shall sign a Lease Purchase Addendum ("Addendum") setting forth the
particulars regarding the transaction, including, without limitation, the list
of Items of equipment (individually, an "Item" and, collectively, the
"Equipment"), the prices of each Item (including disclosure of all rebates,
discounts and other incentives received or receivable with respect thereto).
"Related Costs," including taxes, transportation, installation and other
applicable costs, the aggregate of the foregoing ("Total Cost"), length of the
Basic Term, rental rates, purchase and renewal options, if any, and other
applicable provisions. "Cost of an Item" shall mean the price of the Item plus
its applicable portion of Related Costs. In the absence of a signed Addendum,
this Master Lease shall not constitute a lease or a commitment by either party
to enter into a lease.
2. Request to Lease; Equipment Acceptance
(a) REQUEST; SPECIFICATIONS. Signing an Addendum shall
constitute the request from Lessee to Lessor to lease the Equipment, and the
Addendum and this Master Lease shall constitute the lease and agreement (the
"Lease") regarding the Equipment. As security for all obligations of Lessee to
Lessor now existing or hereafter arising under this Lease, Lessee grants Lessor
a security interest in all Equipment. At the time of signing the Addendum,
Lessee shall furnish Lessor detailed specifications ("Specifications") of the
Items, including descriptions, prices, delivery terms and instructions,
installation provisions and all other applicable specifications. Lessee assumes
full responsibility with respect to the selection of Items supplied for lease
and the specification thereof; the Lessor
<PAGE> 2
shall have no liability or responsibility with respect thereto regardless of
whether the Specifications prove inadequate for the intended purpose or use.
(b) INSPECTION; ACCEPTANCE. It is Lessee's responsibility to
receive and promptly inspect and test each Item tendered for delivery by a
supplier and the installation thereof. Lessee shall give Lessor written notice
of acceptance of an Item as soon as it can be determined that the Item and its
installation are in compliance with Specifications. As between Lessee and
Lessor, the giving of such written notice shall constitute Lessee's irrevocable
acceptance of the Item or Items designated in the notice, whether or not such
Items or their installation are defective in any respect, and notwithstanding
any failure of an Item or its installation to conform to Specifications, without
prejudice however to rights which Lessor and Lessee, or either of them, may have
against any other person, whether with respect to design, manufacture, condition
or otherwise.
(c) PURCHASE CUT-OFF DATE. If, by the "Purchase Cut-Off Date"
set forth in an Addendum, Lessee shall not have given Lessor written notice of
acceptance of an Item, Lessor shall have no obligation to lease the Item to
Lessee. In such event, Lessee shall immediately pay all accrued Interim Rental
and reimburse Lessor for all sums Lessor may have paid for with respect to the
Item and for all Lessor's costs and expenses with respect thereto, and Lessee
shall indemnify and defend Lessor against and hold Lessor harmless from any and
all cost, expense, loss, liability and damage that Lessor may suffer or that may
be asserted against Lessor by reason of Lessor's failure or refusal to lease
such Item. Any such Item shall be deemed to be deleted from the Addendum and no
longer included in the Equipment.
(d) CONDITIONS PRECEDENT. Lessee shall deliver to Lessor such
further instruments, documents and certifications as Lessor reasonably may
request, including, without limitation evidences of authority (e.g., corporate
certificates, corporate resolutions, partnership documents and authorizations),
evidence of insurance, purchase orders and acceptances thereof, purchase and
sale agreements and financial information, and instruments and documents to
implement, perfect or continue the perfection of Lessor's rights and remedies as
Lessor of the Equipment, including Uniform Commercial Code forms. Lessee's
delivery of the foregoing and of the Specifications are conditions precedent to
any obligation of Lessor to make any commitments to pay for the Equipment or any
Item.
(e) SUPPLEMENTAL LEASE REQUEST. If at any time prior to the
Closing Date Lessee requests Lessor to add further Items to the Equipment, and
if Lessor so agrees, Lessee shall execute a Lease Purchase Addendum Supplement
in a form supplied by Lessor, which shall become part of the Addendum, subject
to all of its provisions and the provisions of this Master Lease, and the
Equipment specified therein shall be Items of Equipment under the Lease.
-2-
<PAGE> 3
(f) CLOSING. Following the date ("Closing Date") which is the
earlier of (i) the date Lessee gives Lessor written notice of acceptance of the
last Item or (ii) the Purchase Cut-Off Date (or on such other day as is mutually
agreed), Lessor shall send Lessee a Closing Schedule ("Schedule"), setting forth
any adjustments to descriptions and Costs of Items and Total Cost and confirming
the Closing Date, amount of Periodic Rental installments, payment schedules, and
insurance requirements. Lessee's signature on any such Schedule shall signify
the Lessee's agreement that the Schedule is correct. Notwithstanding any
discrepancies or disagreements between Lessor and Lessee regarding the
Schedules, Lessee shall pay all rentals as they become due in accordance with
the terms and conditions of the Lease. If Lessee establishes an error that
affects the amount of rentals, Lessor shall give Lessee a credit for any
overpayment of rentals, and Lessee promptly shall pay Lessor any underpayments.
The Schedules are incorporated herein by reference.
3. Lessee's Warranties
(a) Lessee represents and warrants to Lessor that it is a
corporation or partnership duly organized, validly existing and in good standing
under the laws of the jurisdiction of its organization and that it is qualified
to do business in every jurisdiction where the failure to qualify would have a
materially adverse effect on Lessor's rights hereunder, it has taken all
corporate or partnership action which may be required to authorize the
execution, delivery and performance of this Lease, and such execution, delivery
and performance will not conflict with or violate any provision of its Charter
or Articles or Certificate of Incorporation, By-laws or any provisions thereof,
or in the case of a partnership, its Certificate of Partnership or Limited
Partnership and its Partnership Agreement, or result in a default or
acceleration of any obligation under any agreement, order, decree or judgment to
which it is a party or by which it is bound, nor is it now in default under any
of the same; there is no litigation or proceeding pending or threatened against
it which may have a materially adverse effect on Lessee or which would prevent
or hinder the performance by it of its obligations hereunder; this Lease and the
attendant documents constitute valid obligations of the Lessee, binding and
enforceable against it in accordance with their respective terms; no action by
or with any commission or administrative agency is required in connection
herewith; it has the power to own its assets and to transact business in which
it is engaged; it will give to Lessor prompt notice of any change in its name,
identity or structure.
(b) Lessee's written acceptance of an Item and its
installation shall constitute a REPRESENTATION AND WARRANTY BY Lessee to Lessor
that (i) the Item is personal property in good order and condition; (ii) the
Item conforms to Specifications; (iii) unless otherwise specified, the Item has
not been used prior to its acceptance by Lessee; and (iv) at all times Lessee
shall keep the Equipment in Lessee's
-3-
<PAGE> 4
possession at the address specified in the Addendum unless Lessor shall
otherwise consent in writing. Lessee shall not cause, suffer or permit any Item
to be attached or affixed to real property or improvements thereon
(collectively, "Realty") unless Lessor first shall consent thereto in writing
and Lessee shall have obtained from all persons having any interest in the
Realty written consents which approve such attachment, waive any claims to or
encumbrances upon attached Items and consent to the detachment and removal of
such Items at any time by Lessor or Lessee. Notwithstanding attachment of any
Items to Realty, all the Equipment at all times shall be and remain personal
property. Upon termination of Lessee's right to possession of the Equipment,
whether by expiration of the Term or otherwise, Lessee at its sole cost and
expense shall detach and remove the Equipment from the Realty and save Lessor
harmless from and indemnify and defend Lessor against any claim, demand, loss,
liability and damage arising from such detachment, removal or both.
4. Term Of Lease
The Term of the Lease ("Term") may consist of an "Interim
Term" and a "Basic Term." The Interim Term shall begin on the date that Lessee
first gives Lessor written notice of acceptance of an Item or written approval
for partial payment, whichever is earlier, and shall continue until the time the
Basic Term begins. The Basic Term shall begin on the Closing Date and shall
continue for the length of the Basic Term set forth in the Addendum.
5. Interim Rental
During the Interim Term, if any, Lessee shall pay rent monthly
("Interim Rental"), on a calendar month basis, in an amount determined by Lessor
by applying the "Interim Rental Rate" set forth in the Addendum to portions of
the Total Cost then or theretofore expended by Lessor, for the number of days
such sums are outstanding during such calendar month. The "prime rate" referred
to in this Lease shall mean the rate per annum publicly announced by Chase
Manhattan Bank, New York City, from time to time as its prime rate, whether or
not such rate is applied by said bank to any then outstanding loans, changing
with each annual change of such prime rate, Lessee shall pay Lessor each
installment of Interim Rental on the fifteenth day after the end of such
calendar month.
6. Periodic Rental
Lessee shall pay rent ("Periodic Rental") for the Basic Term
in an amount calculated by multiplying the Total Cost by the Periodic Rental
Rate set forth in the Addendum multiplied by the number of months constituting
the length of the Basic Term. Lessee shall pay installments of Periodic Rental
to Lessor in accordance with the payment schedule set forth in the Addendum.
-4-
<PAGE> 5
7. Late Payment
If any installment of rent or other sum owing under the Lease
shall not be paid when due and shall remain unpaid for ten (10) days, Lessee
shall pay Lessor a late charge equal to five percent (5%) of the amount
delinquent, but in no event at a rate greater than limited by any applicable
law. Such late charge is in addition to and not in lieu of other rights and
remedies Lessor may have.
8. Insurance
Lessee shall procure and continuously maintain and pay for (a)
all risk insurance against loss or damage to the Equipment for not less than the
full replacement value thereof naming Lessor as Loss Payee and (b) combined
single limit liability insurance, insuring Lessor and Lessee, all in such
amounts and against such risks and hazards as are set forth in the Addendum,
with insurance companies and pursuant to contracts or policies satisfactory to
Lessor. All contracts and policies shall include provisions for the protection
of Lessor notwithstanding any act or neglect of or breach or default by Lessee,
shall provide that proceeds of all insurance shall be payable first to Lessor to
the extent of its liability or interest as the case may be, shall provide that
they may not be modified, terminated or canceled unless Lessor is given at least
thirty (30) days' advance written notice thereof, and shall provide that the
coverage is "primary coverage" for the protection of Lessee and Lessor
notwithstanding any other coverage carried by Lessee or Lessor protecting
against similar risks. Lessee shall promptly notify any appropriate insurer and
Lessor of each and every occurrence which may become the basis of a claim or
cause of action against the insureds and provide Lessor with all data pertinent
to such occurrence. Lessee shall furnish Lessor with certificates of such
insurance or copies of policies upon request, and shall furnish Lessor with
renewal certificates not less than ten (10) days prior to the renewal date.
9. Taxes
Lessee shall pay all taxes, fees, assessments and other
governmental charges of whatsoever kind or character and by whomsoever payable
on or relating to any Item of Equipment or the sale, purchase, ownership, use,
value, value added, possession, shipment, transportation, delivery or operation
thereof or the exercise of any option, election or performance of any obligation
by Lessee hereunder, which may accrue or be levied, assessed or imposed during
the Term and any Renewal Term or which remain unpaid as of the date of surrender
of such Item to Lessor, and all taxes of any kind imposed by any federal, state,
local or foreign taxing authority against Lessor on or measured by any amount
payable by Lessee hereunder, including, without limitation, all license and
registration fees and all sales, use, value, ad valorem, personal property,
excise, gross receipts, stamp or other taxes, imposts, duties and charges
together with any penalties,
-5-
<PAGE> 6
fines, or interest thereon, except taxes of Lessor on net income imposed by the
United States or any state. Lessee shall reimburse Lessor for any payments made
by Lessor which are the obligation of Lessee under the Lease, but Lessee shall
not be obligated to pay any amount under this Section so long as it shall in
good faith and by appropriate proceeding contest the validity or the amount
thereof, unless such contest would adversely affect Lessor's interest in any
Item of Equipment or would subject any Item to forfeiture or sale. Lessee shall
indemnify Lessor on an after-tax basis against any loss, claim, demand and
expense, including legal expense, resulting from such nonpayment or contest and
further agrees to indemnify Lessor against any and all taxes, assessments and
other charges imposed upon Lessor under the laws of any federal, state, local or
foreign government or taxing authority, as a result of any payment made by
Lessee pursuant to this Section. Whenever this Lease terminates as to any Item,
Lessee will on request advance to Lessor the amount estimated by Lessor to equal
personal property taxes on the Item which are not yet payable but for which
Lessee will afterward become liable hereunder; Lessor will account to Lessee for
such advances. On request of either Lessor or Lessee, the other will submit
written evidence of all payments required of it under this Section.
10. Maintenance, Etc.
(a) Lessee at its expense at all times shall: (i) keep the
Equipment in good and efficient working order, condition and repair, ordinary
wear and tear excepted, and make all inspections and repairs, including
replacement of worn parts, to effect the foregoing and to comply with
requirements of laws, regulations, rules and provisions and conditions of
insurance policies; and (ii) pay all costs, expenses, fees and charges incurred
in connection with the use or operation of the Equipment and of each Item,
including but not limited to repairs, maintenance, storage and servicing. Lessee
shall not make any alterations, substitutions, improvements or additions to the
Equipment or Items, except those required in order to comply with laws,
regulations, rules and insurance policies, unless Lessor first shall have
consented thereto in writing. Notwithstanding any consent by Lessor, Lessee
shall pay all costs and expenses of the foregoing. All replacements, repairs,
improvements, alterations, substitutions and additions shall constitute
accessions to the Equipment and shall be subject to Lessor's security interest.
(b) Lessor hereby transfers and assigns to Lessee, for so long
during the Term and any Renewal Term as Lessee is not in default, Lessor's
right, title and interest in, under and to any assignable factory and dealer
warranty, whether express or implied, with respect to the Equipment. All claims
and actions upon any warranty shall be made and prosecuted by Lessee at its sole
cost and expense. Lessor shall have no obligation to make or prosecute any claim
upon or under a warranty. So long as Lessee shall not be in default, Lessor
shall cooperate with Lessee with respect to a claim on a non-assignable
warranty, at Lessee's expense. Lessee shall have proceeds of a warranty claim or
recovery paid to Lessor. Lessor shall make such proceeds available for any
repair, restoration or
-6-
<PAGE> 7
replacement to correct such warranted condition. Excess proceeds shall be used
to reduce Lessee's Lease obligations.
11. Use
So long as Lessee shall not be in default, Lessee shall be
entitled to the possession, use and quiet enjoyment of the Equipment during the
Term and any Renewal Term in accordance with the terms of the Lease. Lessee
warrants that the Equipment will at all times be used and operated solely in the
conduct of Lessee's business for the purpose for which it was designed and
intended and under and in compliance with applicable laws and all lawful acts,
rules, regulations and orders of any governmental bodies or officers having
power to regulate or supervise the use of such property, except that Lessee may
in good faith and by appropriate proceedings contest the application of any such
rule, regulation or order in any reasonable manner that will not adversely
affect the interest of Lessor in any Equipment or subject the same to forfeiture
or sale. Lessee will not permit its rights or interest hereunder to be subject
to any lien, charge or encumbrance and will keep the Equipment free and clear of
any and all liens, charges, encumbrances and adverse claims (except those
arising from acts of Lessor).
12. Net Lease; Loss And Damage
(a) This is a net lease. Lessee assumes all risk of and shall
indemnify Lessor against all damage to and loss of the Equipment from any cause
whatsoever, whether or not such loss or damage is or could have been covered by
insurance. Except as otherwise specifically provided herein, the Lease shall not
terminate and there shall be no abatement, reduction, suspension or deferment of
Interim or Periodic Rental for any reason, including damage to or loss of the
Equipment or any one or more Items. Lessee promptly shall give Lessor written
notice of any material loss or damage, describing completely and in detail the
cause and the extent of loss and damage. At its option, Lessee shall: (i) repair
or restore the damaged or lost Items to good condition and working order; or
(ii) replace the damaged or lost Items with similar equipment in good condition
and working order; or (iii) pay Lessor in cash the Stipulated Loss Value of the
damaged or lost Items. Upon Lessee's complying with the foregoing, Lessor shall
pay or cause to be paid over to Lessee the net proceeds of insurance, if any,
with respect to such damage or loss. "Damage" and "loss" shall include damages
and losses of any kind whatsoever including, without limitation, physical damage
and partial or complete destruction, including intentionally caused damage and
destruction, and theft.
(b) If Lessee pays Lessor the Stipulated Loss Value for an
Item, then the Lease shall terminate with respect to that Item, that Item shall
no longer be deemed part of the Equipment and Lessee shall be entitled to retain
the Item. However, it is understood that Lessor makes no representation or
warranty with respect to the Item, and further that
-7-
<PAGE> 8
Lessor shall have no obligation to pay any tax with respect thereto. In the
event that Lessee pays Lessor the Stipulated Loss Value for an Item, no further
Interim Rental shall be payable with respect to the Item, and Periodic Rental
for the remainder of the Term shall be reduced by multiplying the Cost of that
Item by the Periodic Rental Rate by the number of months then remaining in the
Basic Term.
13. Stipulated Loss Value
The "Stipulated Loss Value" of an Item shall be a sum computed
by Lessor, which is equal to that portion of the Cost of that Item which remains
outstanding presuming that Periodic Rental payments received are first applied
to earned but unpaid interest at the rental rate as specified in the Addendum.
The Stipulated Loss Value for the Equipment shall not exceed the amount set
forth in the Closing Schedule for the Lease Year during which the loss occurs,
which amount shall be prorated monthly effective to the month in which payment
of the Stipulated Loss Value is received by Lessor. A "Lease Year" is a
twelve-month period beginning on the Closing Date or on any anniversary thereof.
14. Security Interest And Marking
(a) This Lease is one intended as security and for tax
purposes, both parties will treat this transaction as a secured loan by Lessor
to Lessee.
(b) If so requested by Lessor, Lessee will affix tags,
supplied by Lessor, reflecting Lessor's security interest in the Equipment.
15. Lessee's Indemnities
Lessee will defend, indemnify and hold harmless Lessor from
and against any claim, cause of action, damage, liability, cost or expense
(including but not limited to legal fees and costs) which may be asserted
against or incurred in any manner by or for the account of Lessor or Lessee: (i)
relating to the Equipment or any part thereof, including, without limitation,
the manufacture, construction, purchase, delivery, acceptance or rejection,
installation, ownership, sale, leasing, removal or return of the Equipment, or
as a result of the use, maintenance, repair, replacement, operation or the
condition thereof (whether defects are latent or discoverable); (ii) by reason
or as a result of any act or omission of Lessee for itself or as agent or
attorney-in-fact for Lessor hereunder; (iii) as a result of claims for patent,
trademark or copyright infringement; or (iv) as a result of product liability
claims or claims for strict liability.
-8-
<PAGE> 9
16. Lessor May Perform
if lessee at any time shall fail to pay to any person any sum
which Lessee is required by the Lease to pay or shall fail to do or perform any
other thing Lessee is required by the Lease to do or perform, Lessor at its
option may pay such sum or do or perform such thing, and Lessee shall reimburse
Lessor on demand for the amount of such payment and for the cost and expense
which may be incurred by Lessor for such acts or performance, together with
interest thereon at the Default Rate from the date of demand until paid.
17. Events Of Default And Remedies
(a) EVENTS OF DEFAULT. Each of the following shall constitute
an event of default: (i) failure to perform and comply with the provisions and
conditions of Section 8 hereof; or (ii) failure to pay on the date when due, any
sum, including installments of rental, owed by Lessee or any affiliate of Lessee
at any time to Lessor, (iii) failure to perform and comply with any other
provision or condition of the Lease within thirty (30) days after Lessor shall
have given Lessee written notice of default with respect thereto; or (iv) any
event of default occurs with respect to any obligations of Lessee to Lessor (or
to any affiliate of Lessor, including, without limitation, MetLife Capital,
Limited Partnership and Metropolitan Life Insurance Company and their respective
affiliates and/or subsidiaries) on or with respect to any transactions, debts,
undertakings or agreements other than the Lease; or (v) if any representation or
warranty made by Lessee herein or in any statement or certificate furnished by
Lessee in connection wit this Lease proves untrue in any material respect as of
the date of making thereof, and shall not be made good within thirty (30) days
after written notice thereof to Lessee, or Lessee becomes insolvent or is
generally not paying its debts as they become due or makes an assignment for
benefit of creditors; or (vi) proceedings are commenced by Lessee under the
Federal Bankruptcy Code or any similar Federal or State laws for the relief of
debtors are commenced against Lessee and are not dismissed within sixty (60)
days after such commencement, or a trustee or receiver is appointed for Lessee
or a major part of its property and is not discharged within thirty (30) days
after such appointment; or (vii) any item of Equipment is seized or levied on
under legal or governmental process against Lessee or against such item of
Equipment or for any reason Lessor deems itself insecure; (viii) the merger,
consolidation, reorganization, conversion to a Subchapter "S" status or
dissolution of a corporate or partnership Lessee which has a materially adverse
effect upon Lessor's position under the Lease.
(b) REMEDIES. The occurrence of an Event of Default shall
terminate any obligation of Lessor to lease Equipment or Items thereof to
Lessee. When an Event of Default has occurred and is continuing, Lessor at its
option may: (i) proceed by appropriate court action or actions, either at law or
in equity, to enforce performance by the
-9-
<PAGE> 10
Lessee of the applicable covenants of this Lease or to recover damages for the
breach thereof, and/or (ii) without notice or demand declare immediately due and
payable the entire Stipulated Loss Value of any and all Items of Equipment then
under lease plus any and all amounts which under the terms of the Lease may be
then due; and thereupon MetLife shall have an immediate right to pursue all
remedies provided by law, including, without limitation, the following: (a)
Lessee agrees to put Lessor in possession of the Equipment on demand; (b) Lessor
is authorized to enter any premises where Equipment is situated and take
possession thereof without notice or demand and without legal proceedings; (c)
at Lessor's request, Lessee will assemble the Equipment and make it available to
Lessor at a place designated by Lessor which is reasonably convenient to both
parties; (d) Lessee agrees that ten (10) days from the time notice is sent shall
be a reasonable period of notification of a sale or other disposition of the
Equipment; (e) Lessee agrees to pay on demand the amount of all expenses
reasonably incurred by Lessor in protecting or realizing on the Equipment; (f)
if Lessor disposes of the Equipment, Lessee agrees to pay any deficiency
remaining after application of the net proceeds to the amounts due hereunder.
If upon the occurrence of an Event of Default, Lessor brings
suit or otherwise incurs expenses for protection of Lessor's rights, Lessee will
pay Lessor its legal fees, in a reasonable amount, together with Lessor's
collection expenses and court costs. In addition, from and after an Event of
Default, Lessee shall be liable for interest on amounts due Lessor hereunder at
a rate per annum computed monthly which shall be five (5) percentage points
above the prime rate, but not greater than the maximum rate, if any, limited by
applicable law ("Default Rate"); provided, however, that Lessee shall not be
assessed a late charge during such period of time that the Default Rate is
accruing against Lessee as herein stated. The remedies herein provided in favor
of Lessor shall not be deemed to be exclusive but shall be concurrent and
cumulative and in addition to all other remedies available at law or equity. The
exercise or partial exercise of any remedy shall not restrict Lessor from
further exercise of that remedy or any other remedy.
16. Surrender
At any time that Lessee is required to deliver the Equipment
to Lessor, Lessee shall immediately cease using the Equipment and at Lessee's
expense shall redeliver and surrender the Equipment to Lessor in good order,
condition and repair, ordinary wear and tear excepted, securely crated and
safely packed, at a place to be designated by Lessor in the State where the
Equipment by the terms of the Addendum is required to be kept, and, if Lessor so
specifies, loaded FOB a common or contract carrier designated by Lessor.
-10-
<PAGE> 11
19. Holdover
If Lessee shall not immediately redeliver and surrender any
Item of Equipment to Lessor when required by the terms hereof, Lessee shall pay
Lessor, at such time or times as Lessor may demand, a sum equal to a one-month
installment of Periodic Rental for each calendar month or fraction of a month
during which such failure to redeliver and surrender continues.
20. Inspection; Reports
Lessor, its agents and employees shall have the right to enter
upon any premises where the Equipment or Items are then located to inspect and
examine the same during normal business hours and at any other times if Lessor
reasonably believes any Items or Lessor's rights are in jeopardy of damage or
loss. So long as Lessee is not in default, Lessor shall give Lessee not less
than twenty-four (24) hours notice of such inspection. Lessee shall immediately
give Lessor written notice of any damage to or loss of the Equipment or any
Items from any cause, including without limitation damage or loss caused by
accident, the elements, intentional acts and theft. Such notice shall provide
itemization of the affected Items and a detailed account of the event, including
names of any injured persons and a description of any damaged property arising
from any such event or from any use or operation of the Equipment or any Items,
and of any attempt to take, distrain, levy upon, seize or attach the Equipment
or any Items. All rights granted to Lessor herein are for the benefit of Lessor
and shall not be construed to impose any obligation on Lessor, whether or not
Lessor makes any inspections or receives any reports.
21. Financial And Other Data
During the Term and any Renewal Term, Lessee: (a) shall
furnish Lessor annual balance sheets and profit and loss statements of Lessee
and any guarantor of Lessee's obligations accompanied, at Lessor's request, by
the audit report of an independent certified public accountant acceptable to
Lessor, and (b) at Lessor's request, shall furnish Lessor all other financial
information and reports reasonably requested by Lessor at any time, including
quarterly or other interim balance sheets and profit and loss statements of
Lessee and any such guarantor. Lessee shall furnish such other information as
Lessor may reasonably request at any times concerning Lessee and its affairs.
22. Warranty Of Information
Lessee warrants that all information furnished and to be
furnished to Lessor is accurate and that all financial statements it has
furnished and hereafter may furnish Lessor, including operating statements and
statements of condition, are and will be prepared in accordance with generally
accepted accounting principles, consistently applied,
-11-
<PAGE> 12
and reasonably reflect and will reflect, as of their respective dates, results
of the operations and the financial condition of Lessee and of any other entity
they purport to cover.
23. Non-Waiver
Neither the acceptance by Lessor of any payment or any other
performance, nor any act or failure of Lessor to act or to exercise any rights,
remedies or options in any one or more instances shall constitute a waiver of
any such right, remedy or option or of any other then existing or thereafter
accruing right, remedy or option, or of any breach or default then existing or
thereafter occurring. No purported waiver by Lessor of any right, remedy,
option, breach or default shall be binding unless in writing and signed by an
officer of Lessor. A written waiver by Lessor of any right, remedy, option,
breach or default shall not constitute a waiver of any other then existing or
thereafter accruing right, remedy or option or of any other then existing or
thereafter occurring breach or default.
24. Notices; Payments
(a) A written notice may be given: (i) by delivering the same
to a corporate officer of the party to whom it is directed (the "Addressee"), or
to a general partner if the Addressee is a partnership, or to the owner if the
Addressee is a sole proprietorship; or (ii) by mailing the notice to the
Addressee by first class mail, registered or certified, with postage prepaid,
addressed to the Addressee at the address following its name in the opening
paragraph of this Master Lease or to such other address as Addressee may specify
by notice in writing given in accordance with this Section. A notice so mailed
shall be deemed given on the third business day following the date of mailing. A
"business day" shall be any day that is not a Saturday or Sunday or legal
holiday.
(b) The Lessee shall make all payments to Lessor at the place
where the notice is to be mailed to Lessor pursuant to subparagraph (a).
Payments are deemed paid when received by Lessor.
25. Assignment
(a) Lessee shall not assign the Lease or any rights in or to
the Equipment or Items. Any attempted assignment shall be of no effect, unless
Lessor first shall have consented thereto in writing. Lessor's consent to an
assignment in any one or more instances shall not impose any obligation upon
Lessor to consent to any other or further assignment. Lessor's consent to an
assignment shall not release Lessee from any obligations with respect to the
Lease unless expressly so stated in the written consent.
(b) All rights of Lessor hereunder may be assigned, pledged,
mortgaged, transferred or otherwise disposed of, either in whole or in part,
without notice to Lessee but
-12-
<PAGE> 13
subject always to the rights of Lessee under this Lease. If Lessee is given
notice of any such assignment, Lessee shall acknowledge receipt thereof in
writing. In the event that Lessor assigns this Lease or the rent due or to
become due hereunder or any other interest herein, whether as security for any
of its indebtedness or otherwise, no breach or default by Lessor hereunder or
pursuant to any other agreement between Lessor and Lessee, should there be one,
shall excuse performance by Lessee of any provision hereof, it being understood
that in the event of such default or breach by Lessor that Lessee shall pursue
any rights on account thereof solely against Lessor. No such assignee shall be
obligated to perform any duty, covenant or condition requested to be performed
by Lessor under the terms of this Lease.
26. Survival
The representations, warranties, indemnities and agreements of
Lessee, and Lessee's obligations under any and all provisions of the Lease,
shall survive the expiration or other termination of the Lease, shall be binding
upon its successors and assigns and are expressly made for the benefit of and
shall be enforceable by Lessor and its successors and assigns.
27. Miscellaneous
(a) The term "Lessor" shall mean the Lessor named herein and
its successors and assigns.
(b) Whenever the context so requires, any pronoun gender
includes all other genders, and the singular includes the plural. If more than
one person constitute Lessee, whether as a partnership or otherwise, all such
persons are and shall be jointly and severally liable for all agreements,
undertakings and obligations of Lessee.
(c) All captions and section, paragraph and other divisions
and subdivisions are for convenience of reference only and shall not affect the
construction, interpretation or meaning of the agreement or Lease or of any of
the provisions thereof.
(d) This Lease shall be governed by and construed according to
the law of the State of Washington.
(e) This Lease shall be binding upon and, except as limited in
Section 25 hereof, shall inure to the benefit of Lessor and Lessee and their
respective successors and assigns.
(f) This Lease cannot be canceled or terminated except as
expressly provided herein.
-13-
<PAGE> 14
(g) Wherever Lessor's consent is required hereunder, such
consent will not be unreasonably withheld.
(h) Lessee's obligation to pay or reimburse Lessor for
expenses as provided hereunder shall be limited to reasonable expenses.
28. Lessor's Disclaimer
Lessee acknowledges and agrees that it has selected both the
Equipment of the type and quantity which is the subject of this Lease and the
supplier from whom the Equipment was purchased. LESSOR MAKES NO REPRESENTATION
OR WARRANTY, EXPRESS OR IMPLIED, AS TO THE DESIGN, COMPLIANCE WITH
SPECIFICATIONS, CONDITION, QUALITY, WORKMANSHIP, OR THE SUITABILITY, ADEQUACY,
OPERATION, USE OR PERFORMANCE OF THE EQUIPMENT OR AS TO ITS MERCHANTABILITY OR
FITNESS FOR ANY PARTICULAR PURPOSE. ANY DELAY IN DELIVERY SHALL NOT AFFECT THE
VALIDITY OF THIS LEASE. The Lessee understands and agrees that neither the
supplier nor any salesman or any agent of the supplier is an agent of Lessor. No
salesman or agent of supplier is authorized to waive or alter any term or
condition of this Lease, and no representation as to the Equipment or any other
matter by the supplier shall in any way affect Lessee's duty to pay the rent and
perform its obligations as set forth in this Lease. Lessor shall not be liable
to Lessee for any incidental, consequential, or indirect damages or for any act,
neglect, omission, breach or default by any third party.
29. No Affiliation With Suppliers
lessee warrants that neither it nor any of its officers,
directors (if a corporation) or partners (if a partnership) has, directly or
indirectly, a substantial financial interest in the manufacturer or supplier of
any Equipment except as previously disclosed in writing to Lessor.
30. Entire Agreement
This Master Lease and any Lease Purchase Addenda hereto shall
constitute the entire agreement between the parties and shall not be altered or
amended except by an agreement in writing signed by the parties hereto or their
successors or assigns.
-14-
<PAGE> 15
IN WITNESS WHEREOF, Lessor and Lessee have signed this agreement as of the day
and year first hereinabove written.
LESSOR: LESSEE: See attached Signature Page
METLIFE CAPITAL CORPORATION
By /s/ WILLIAM J. STODDARD By
---------------------------- -----------------------------------
Its Sr. Vice President Its
--------------------------- -----------------------------------
-15-
<PAGE> 16
This Signature Page is attached to and made a part of that certain Master Lease
Purchase Agreement dated 11/21/1995 by and between MetLife Capital Corporation
("Lessor") and AMSCAN INC. ("Co-Lessee"), DECO PAPER PRODUCTS, INC.
("Co-Lessee"), KOOKABURRA USA, LTD. ("Co-Lessee"), and TRISAR, INC.
("Co-Lessee").
CO-LESSEE
AMSCAN INC.
By /s/ SHERYL B. MELLIN Address:
---------------------------------- South and Macy Road
Its TREASURER Harrison, New York 10528
---------------------------------
CO-LESSEE
DECO PAPER PRODUCTS, INC.
By /s/ SHERYL B. MELLIN Address:
---------------------------------- 4004 Collins Lane
Its TREASURER Louisville, Kentucky 40245
---------------------------------
CO-LESSEE
KOOKABURRA USA, LTD.
By /s/ SHERYL B. MELLIN Address:
---------------------------------- One Commerce Drive South
Its TREASURER Harriman, NY 10926
---------------------------------
CO-LESSEE
TRISAR, INC.
By /s/ SHERYL B. MELLIN Address:
---------------------------------- 121 Old Springs Road
Its TREASURER Anaheim, CA 92808
---------------------------------
-16-
<PAGE> 17
LEASE PURCHASE ADDENDUM NO. ONE
THIS ADDENDUM is entered into the 21st day of November, 1995
between METLIFE CAPITAL CORPORATION ("Lessor") whose mailing address is C-97550,
Bellevue, Washington 98009 and AMSCAN INC. ("Co-Lessee"), DECO PAPER PRODUCTS,
INC. ("Co-Lessee"), KOOKABURRA USA, LTD. ("Co-Lessee"), and TRISAR, INC.
("Co-Lessee") whose addresses are South & Macy Road, Harrison, NY 10528, 4004
Collins Lane, Louisville, KY 40245, One Commerce Drive South, Harriman, NY 10926
and 121 Old Springs Road, Anaheim, CA 92808, respectively.
Lessee has requested to lease from Lessor the following items
of personal property (individually, an "Item" and, collectively, the
"Equipment") for the prices and for delivery as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
Name and Address
of Supplier Quantity Complete
Description of Equipment Price
- -------------------------------------------------------------------------------------
<S> <C> <C>
(New unless
otherwise specified)
See Attached
Schedule, [ ] check
if applicable
TO BE DETERMINED VARIOUS FLEXO
PRESSES, CUP, FOLDING, $6,000,000.00
PACKAGING AND
WAREHOUSE EQUIPMENT
TOTAL PRICE $6,000,000.00
FED. EXCISE TAX $
TRANSPORTATION $
OTHER $
- -------------------------------------------------------------------------------------
Date Delivery Delivery Instructions to be
Expected: as specified by Lessee TOTAL COST: $6,000,000.00
On or before 12/31/95 to Supplier
- -------------------------------------------------------------------------------------
Street City
County State
SHIP TO
LESSEE AT: AS PER LESSEE'S INSTRUCTIONS
- -------------------------------------------------------------------------------------
</TABLE>
Lessee and Lessor AGREE that subject to the conditions and agreements herein and
in the Master Lease referred to below (i) Lessor shall lease the Equipment to
Lessee, and (ii)
<PAGE> 18
Lessee shall lease the Equipment from Lessor and perform and comply with the
provisions of this Agreement.
Certain Definitions and Stipulations:
Purchase Cut-Off Date: 12/31/95
Particular Lease Terms:
Length of Basic Term: One Hundred Twenty (120) months
Interim Rental Rate: (.25%) percentage point(s) above Chase
Manhattan Bank's Prime Rate
Periodic Rental Rate (for each installment) **1.1457% percent (%) of
Lessor's Cost of the
Equipment
Payment Schedule: Monthly in arrears
**The rental factor expressed above as a percentage of Equipment Cost will be
adjusted at lease closing in accordance with the following formula:
The rental factor will be converted to a simple interest equivalent rate that is
then increased or decreased 1% for each 1% (or pro rata for any fraction of 1%)
change in the average yield of seven-year U.S. Treasury Notes (as published in
the Federal Reserve Statistical Release H.15[519]) from the complete one week
period immediately preceding the date of lease closing. At the time of the
proposal dated August 21, 1995, the average yield for the prior week is 6.42%.
Purchase, Sale and Renewal Options:
(a) On the last date of the Lease Term, Lessee may
purchase for cash all but not less than all of the
Equipment then under lease for a price equal to
48.147% of Equipment Cost.
(b) If Lessee elects not to purchase the Equipment
pursuant to (a) above, then Lessee shall sell the
equipment in a commercially reasonable manner, or, at
Lessor's option, assuming Lessee has exercised its
option to sell, the Equipment will be sold by Lessor
as agent for Lessee. In no event will Lessee sell the
Equipment for less than 23.000% of Equipment Cost
without Lessor's prior written consent. All net
proceeds of sale shall be paid to Lessor; provided,
however, that if the net proceeds of sale exceed
48.147% of Equipment Cost, such excess shall be paid
to Lessee; provided further however, that if the net
proceeds of sale are less than 48.147% of Equipment
Cost, Lessee shall pay to Lessor the difference to a
maximum of 30.189% Equipment Cost.
-2-
<PAGE> 19
(c) If neither purchase or sale options are exercised in
accordance with Sections (a) or (b) above, then on
the last date of the term the Lease will be renewed
for a period of Thirty six (36) months at a rental
payment equal to 1.14567% of Equipment Cost payable
monthly in arrears.
(d) Assuming the Lease is renewed pursuant to (c), on the
last date of renewal term, Lessee shall have the
option to purchase all but not less than all of the
Equipment then under Lease for a price equal to
15.000% of Equipment Cost.
(e) If Lessee does not exercise the purchase option
referred to in Section (d) above, then the Equipment
will be sold by Lessee, or at Lessor's option by
Lessor as agent for Lessee, in a commercially
reasonable manner, but in no event will Lessee sell
the Equipment for less than 12.000% of Equipment Cost
without Lessor's prior written consent. The net
proceeds of sale shall be paid to Lessor; provided,
however, that if the net proceeds exceed 15.000% of
Equipment Cost, then the excess shall be paid to
Lessee; provided further, however, that if the net
proceeds are less than 15.000% of Equipment Cost,
then Lessee shall pay the difference to Lessor to a
maximum of 8.777% of Equipment Cost.
Premises where Equipment will be kept: various
locations in NY, KY and CA
Insurance Required:
Liability. Not less than $1,000,000.00 Combined Single Limit
Liability insurance, including bodily injury and death and
property damage, naming Lessor as additional insured.
Physical Damage. Not less than $6,000,000.00 All risk physical
damage insurance, including loss by burglary, theft, and
malicious mischief, for full replacement value of the
equipment, naming Lessor as loss payee. Other. N/A
Yield Maintenance Premium: If at any time after the fifth (5th) year or at the
end of the Basic Term or prior to the end of any Renewal Term Lessee elects to
exercise its purchase or sale rights under the "Purchase Option" or "Sale of
Equipment" sections, or if Lessee otherwise elects to retire the outstanding
lease balance, then Lessee may be required to compensate Lessor for any yield
deficiency resulting from market interest rate fluctuations.
-3-
<PAGE> 20
The Yield Maintenance Amount (YMA) is determined by (i) calculating the decrease
(expressed in basis points) in the current weekly average yield of five (5) Year
U.S. Treasury Notes ("Treasury Note Rate") (as published in Federal Reserve
Statistical Release H.15[519]) from 12/26/95 to the termination date, (ii)
dividing the difference by 100, (iii) multiplying the result by the applicable
premium factor shown below, and (iv) multiplying the product by the Purchase
Option Amount (if the Lease is terminating at the end of the Basic Term or the
First Renewal Term) or the outstanding lease balance (if the Lease is
terminating at any other time). In the event that the Treasury Note Rate either
remains the same or increases from 12/26/95 to the termination date, no YMA
shall be payable.
YMA Premium Factors
During Fifth Year of Basic Term .024
During Sixth Year of Basic Term .019
End of Basic Term/During First Year of Renewal Term .014
During Second Year of Renewal Term .010
During Third Year of Renewal Term .005
On the date of termination, Lessee shall pay Lessor the total of (i) Periodic
Rental due on that date and all other amounts due hereunder, (ii) the Purchase
Option Amount (if the Lease is terminating at the end of the Basic Term or the
First Renewal Term) or the outstanding lease balance (if the Lease is
terminating at any other time), (iii) the YMA, if applicable.
Master Lease: Lessor and Lessee are entering into or have entered into a Master
Lease Purchase Agreement ("Master Lease") dated 11/21/95. All of the terms,
conditions, agreements and provisions of the Master Lease are incorporated
herein by this reference and constitute a part of this Addendum. If there shall
be any conflict between any provision of the Master Lease and a provision of
this Addendum, the provision of the Addendum shall govern.
Lessor's Disclaimer: Lessee acknowledges and agrees that it has selected both
the Equipment of the type and quantity which is the subject of this Addendum and
the supplier from whom Lessor purchased the Equipment. LESSOR MAKES NO
REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, AS TO THE DESIGN, COMPLIANCE
WITH SPECIFICATIONS, CONDITION, QUALITY, WORKMANSHIP, OR THE SUITABILITY,
ADEQUACY, OPERATION, USE OR PERFORMANCE OF THE EQUIPMENT OR AS TO ITS
MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE. ANY DELAY IN DELIVERY
SHALL NOT AFFECT THE VALIDITY OF THE MASTER LEASE OR THIS ADDENDUM. The Lessee
understands and agrees that neither the supplier nor any salesman nor any
-4-
<PAGE> 21
agent of the supplier is authorized to waive or alter any term or condition of
the Master Lease or this Addendum, and no representation as to the Equipment or
any other matter by the supplier shall in any way affect Lessee's duty to pay
the rent and perform its obligations as set forth in the Master Lease or this
Addendum. Lessor shall not be liable to Lessee for incidental, consequential, or
indirect damages or for any act, neglect omission, breach or default by Lessor
or any third party.
LESSOR: CO-LESSEE:
METLIFE CAPITAL CORPORATION AMSCAN INC.
By /s/ WILLIAM J. STODDARD By /s/ SHERYL B. MELLIN
-------------------------- ------------------------------------
Its SENIOR VICE PRESIDENT Its TREASURER
-------------------------- ------------------------------------
CO-LESSEE:
DECO PAPER PRODUCTS, INC.
By /s/ SHERYL B. MELLIN
- ------------------------------------- ------------------------------------
Its TREASURER
- ------------------------------------- ------------------------------------
CO-LESSEE:
KOOKABURRA USA, LTD.
By /s/ SHERYL B. MELLIN
- ------------------------------------- ------------------------------------
Its TREASURER
- ------------------------------------- ------------------------------------
CO-LESSEE:
TRISAR, INC.
By /s/ SHERYL B. MELLIN
- ------------------------------------- ------------------------------------
Its TREASURER
- ------------------------------------- ------------------------------------
-5-
<PAGE> 22
ADDENDUM NO. ONE
Addendum No. One to that certain Master Lease Purchase Agreement ("Agreement")
dated November 21, 1995 by and between METLIFE CAPITAL CORPORATION ("Lessor")
and AMSCAN INC. ("Co-Lessee"), DECO PAPER PRODUCTS, INC. ("Co-Lessee"),
KOOKABURRA USA, LTD. ("Co-Lessee"), and TRISAR, INC. ("Co-Lessee").
WHEREAS, the parties desire to enter into the Agreement provided that this
Addendum No. One is executed contemporaneously therewith;
NOW, THEREFORE, it is agreed as follows:
Section 17.(a) Events of Default shall be amended to include the following
additional paragraph:
(ix) failure to comply with the following Financial Covenant:
AMSCAN shall maintain Tangible Net Worth of not less than:
$24,000,000 on 12/31/95
$28,000,000 on 12/31/96
$33,500,000 on 12/31/97
$39,000,000 on 12/31/98
$44,500,000 on 12/31/99
Tangible Net Worth shall be defined as the sum of Total
Shareholders' Equity as stated in AMSCAN's annual audited
financial statements plus the Total Subordinated Debt as
stated in AMSCAN's audited financial statements and no
value shall be given to intangible assets.
IN WITNESS WHEREOF, parties have executed this Addendum No. One this 21st day of
November, 1995.
LESSOR: CO-LESSEE:
METLIFE CAPITAL CORPORATION AMSCAN INC.
By /s/ WILLIAM J. STODDARD By /s/ SHERYL B. MELLIN
------------------------------------ ---------------------------------
Its SENIOR VICE PRESIDENT Its TREASURER
----------------------------------- --------------------------------
<PAGE> 23
CO-LESSEE:
DECO PAPER PRODUCTS, INC.
By /s/ SHERYL B. MELLIN
------------------------------------ ---------------------------------
Its TREASURER
------------------------------------ ---------------------------------
CO-LESSEE:
KOOKABURRA USA, LTD.
By /s/ SHERYL B. MELLIN
------------------------------------ ---------------------------------
Its TREASURER
------------------------------------ ---------------------------------
CO-LESSEE:
TRISAR, INC.
By /s/ SHERYL B. MELLIN
------------------------------------ ---------------------------------
Its TREASURER
------------------------------------ ---------------------------------
-2-
<PAGE> 24
AMENDMENT NO. ONE
AMENDMENT NO. ONE to that certain Lease Purchase Addendum No.
One dated November 21, 1995 by and between METLIFE CAPITAL CORPORATION
("Lessor") and AMSCAN INC. ("Co-Lessee"), DECO PAPER PRODUCTS, INC.
("Co-Lessee"), KOOKABURRA USA, LTD. ("Co-Lessee"), and TRISAR, INC.
("Co-Lessee").
WHEREAS, the parties entered into the Addendum as aforesaid; and
WHEREAS, the parties now desire to amend the Addendum in certain respects;
NOW, THEREFORE, it is agreed as follows:
The Total Cost of the Equipment is hereby increased to $6,335,964.18.
The Length of Basic Term is hereby corrected to Eighty-four (84)
months.
IN WITNESS WHEREOF, the parties have executed this Amendment No. One this 12th
day of February, 1996.
LESSOR: CO-LESSEE:
METLIFE CAPITAL CORPORATION AMSCAN INC.
By /s/ WILLIAM J. STODDARD By /s/ SHERYL B. MELLIN
------------------------------------ ---------------------------------
Its SENIOR VICE PRESIDENT Its TREASURER
------------------------------------ ----------
CO-LESSEE:
DECO PAPER PRODUCTS, INC.
By /s/ SHERYL B. MELLIN
--------------------
Its TREASURER
----------
<PAGE> 25
CO-LESSEE:
KOOKABURRA USA, LTD.
By /s/ SHERYL B. MELLIN
------------------------------------ ---------------------------------
Its TREASURER
------------------------------------ ---------------------------------
CO-LESSEE:
TRISAR, INC.
By /s/ SHERYL B. MELLIN
------------------------------------ ---------------------------------
Its TREASURER
------------------------------------ ---------------------------------
-2-
<PAGE> 26
LEASE PURCHASE ADDENDUM NO. TWO
THIS ADDENDUM is entered into the 20th day of June, 1996
between METLIFE CAPITAL CORPORATION ("Lessor"), whose mailing address is
C-97550, Bellevue, Washington 98009 and AMSCAN INC. ("Co-Lessee"), and TRISAR,
INC. ("Co-Lessee"), whose addresses are 80 Grasslands Road, Elmsford, NY 10523
and 121 Old Springs Road, Anatheim, CA 92808, respectively.
Lessee has requested to lease from Lessor the following items
of personal property (individually, an "Item" and, collectively, the
"Equipment") for the prices and for delivery as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
Name and Address
of Supplier Quantity Complete
Description of Equipment Price
- -------------------------------------------------------------------------------------
<S> <C> <C>
(New unless
otherwise specified)
See Attached
Schedule, [ ] check
if applicable
VARIOUS TO BE Printing and
Warehouse Equipment $10,086,957.79
DETERMINED
TOTAL PRICE $10,086,957.79
FED. EXCISE TAX $
TRANSPORTATION $
OTHER $
- -------------------------------------------------------------------------------------
Date Delivery Delivery Instructions to be
Expected: as specified by Lessee TOTAL COST: $10,086,957.79
On or before 12/30/96 to Supplier
- -------------------------------------------------------------------------------------
Street City
County State
SHIP TO
LESSEE AT: As per Lessee's instructions
- -------------------------------------------------------------------------------------
</TABLE>
Lessee and Lessor AGREE that subject to the conditions and agreements herein and
in the Master Lease referred to below (i) Lessor shall lease the Equipment to
Lessee, and (ii) Lessee shall lease the Equipment from Lessor and perform and
comply with the provisions of this Agreement.
Certain Definitions and Stipulations:
<PAGE> 27
Purchase Cut-Off Date: 12/30/96
Particular Lease Terms:
Length of Basic term: Eighty-four (84) months
Interim Rental Rate: (2.50%) percentage point(s) above Chase
Manhattan Bank's Prime Rate
Periodic Rental Rate (for each installment) **0.98835% percent (%) of
Lessor's Cost of the Equipment
Payment Schedule: Monthly in arrears
**The rental factor expressed above as a percentage of Equipment Cost will be
adjusted at lease closing in accordance with the following formula:
The rental factor will be converted to a simple interest equivalent rate that is
then increased or decreased 1% for each 1% (or pro rata for any fraction of 1%)
change in the average yield of seven-year U.S. Treasury Constant Maturities (as
published in the Federal Reserve Statistical Release H.15[519]) from the
complete one-week period immediately preceding the date of lease closing. At the
time of the proposal dated February 23, 1996, the average yield for the prior
week was 5.46%.
In addition, adjustment of the rental factors as provided above may require
corresponding adjustments to the Purchase Option and Maximum Guaranty
percentages to preserve Lessor's anticipated transaction economics. Lessee will
be provided with adjusted percentages at the time this option to fix the rate is
exercised.
Purchase, Sale and Renewal Options:
(a) On the last date of the Lease Term, Lessee may
purchase for cash all but not less than all of the
Equipment then under lease for a price equal to
59.713% of Equipment Cost.
(b) If Lessee elects not to purchase the Equipment
pursuant to (a) above, then Lessee shall sell all but
not less than all of the equipment in a commercially
reasonable manner, or, at Lessor's option, assuming
Lessee has exercised its option to sell, the
Equipment will be sold by Lessor as agent for Lessee.
In no event will Lessee sell the Equipment for less
than 25.000% of Equipment Cost without Lessor's prior
written consent. All net proceeds of sale shall be
paid to Lessor; provided however, that if the net
proceeds of sale exceed 59.713% of Equipment Cost,
such excess shall be paid to Lessee; provided further
however, that if the net proceeds of sale are less
than 59.713% of Equipment Cost, Lessee shall pay to
Lessor the difference to a maximum of 42.714%
Equipment Cost.
-2-
<PAGE> 28
(c) If neither purchase or sale options are exercised in
accordance with Sections (a) or (b) above, then on
the last date of the term the Lease will be renewed
for a period of Thirty six (36) months at a rental
payment equal to 0.98835% of Equipment Cost payable
monthly in arrears.
(d) Assuming the Lease is renewed pursuant to (c), on the
last date of renewal term, Lessee shall have the
option to purchase all but not less than all of the
Equipment then under Lease for a price equal to
34.899% of Equipment Cost.
(e) If Lessee does not exercise the purchase option
referred to in Section (d) above, then all but not
less than all of the Equipment will be sold by
Lessee, or at Lessor's option by Lessor as agent for
Lessee, in a commercially reasonable manner, but in
no event will Lessee sell the Equipment for less than
15.000% of Equipment Cost without Lessor's prior
written consent. The net proceeds of sale shall be
paid to Lessor; provided however, that if the net
proceeds exceed 34.899% of Equipment Cost, then the
excess shall be paid to Lessee; provided further
however, that if the net proceeds are less than
34.899% of Equipment Cost, then Lessee shall pay the
difference to lessor to a maximum of 27.361% of
Equipment Cost.
Premises where Equipment will be kept: Various
Locations to be determined by Lessee
Insurance Required:
Liability. Not less than $1,000,000.00 Combined Single Limit
Liability insurance, including bodily injury and death and
property damage, naming Lessor as additional insured.
Physical Damage. Not less than $10,086,957.79 All risk
physical damage insurance, including loss by burglary, theft,
and malicious mischief, for full replacement value of the
equipment, naming Lessor as loss payee. Other. N/A.
Yield Maintenance Premium: If at any time after the sixth year or at the end of
the Basic Term or prior to the end of any Renewal Term Lessee elects to exercise
its purchase or sale rights under the "Purchase Option" or "Sale of Equipment"
sections, or if Lessee otherwise
-3-
<PAGE> 29
elects to retire the outstanding lease balance, then Lessee may be required to
compensate Lessor for any yield deficiency resulting from market interest rate
fluctuations.
The Yield Maintenance Amount (YMA) is determined by (i) calculating the decrease
(expressed in basis points) in the current weekly average yield of seven (7)
Year U.S. Treasury Notes ("Treasury Note Rate") (as published in Federal Reserve
Statistical Release H.15[519]) from ___________ to the termination date, (ii)
dividing the difference by 100, (iii) multiplying the result by the applicable
premium factor shown below, and (iv) multiplying the product by the Purchase
Option Amount (if the lease is terminating at the end of the Basic Term or the
First Renewal Term) or the outstanding lease balance (if the lease is
terminating at any other time). In the event that the Treasury Note Rate either
remains the same or increases __________ from to the termination date, no YMA
shall be payable.
YMA Premium Factors
During Seventh Year of Basic Term .029
End of Basic Term/During First Year of First Renewal Term .024
During Second Year of First Renewal Term .019
During Third Year of First Renewal Term .014
End of First Renewal Term/During First Year of Second Renewal Term .010
During Second Year of Second Renewal Term .005
On the date of termination, Lessee shall pay Lessor the total of (i) Periodic
Rental due on that date and all other amounts due hereunder, (ii) the Purchase
Option Amount (if the lease is terminating at the end of the Basic Term or the
First Renewal Term) or the outstanding lease balance (if the lease is
terminating at any other time) (iii) the YMA, if applicable.
Master Lease: Lessor and Lessee are entering into or have entered into a Master
Lease Purchase Agreement ("Master Lease") dated November 21, 1995. All of the
terms, conditions, agreements and provisions of the Master Lease are
incorporated herein by this reference and constitute a part of this Addendum. If
there shall be any conflict between any provision of the Master Lease and a
provision of this Addendum, the provision of the Addendum shall govern.
Lessor's Disclaimer: Lessee acknowledges and agrees that it has selected both
the Equipment of the type and quantity which is the subject of this Addendum and
the supplier from whom Lessor purchased the Equipment. LESSOR MAKES NO
REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, AS TO THE DESIGN, COMPLIANCE
WITH SPECIFICATIONS, CONDITION, QUALITY, WORKMANSHIP, OR THE SUITABILITY,
ADEQUACY, OPERATION, USE OR PERFORMANCE OF THE EQUIPMENT OR AS TO ITS
MERCHANTABILITY OR
-4-
<PAGE> 30
FITNESS FOR ANY PARTICULAR PURPOSE. ANY DELAY IN DELIVERY SHALL NOT AFFECT THE
VALIDITY OF THE MASTER LEASE OR THIS ADDENDUM. The Lessee understands and agrees
that neither the supplier nor any salesman nor any agent of the supplier is
authorized to waive or alter any term or condition of the Master Lease or this
Addendum, and no representation as to the Equipment or any other matter by the
supplier shall in any way affect Lessee's duty to pay the rent and perform its
obligations as set forth in the Master Lease or this Addendum. Lessor shall not
be liable to Lessee for incidental, consequential, or indirect damages or for
any act, neglect omission, breach or default by Lessor or any third party.
LESSOR: CO-LESSEE:
METLIFE CAPITAL CORPORATION AMSCAN INC.
By /s/ WILLIAM J. STODDARD By /s/ JOHN P. JORDAN
--------------------------------- -----------------------------------
Its /s/ VICE PRESIDENT Its /s/ VICE PRESIDENT
--------------------------------- -----------------------------------
CO-LESSEE:
TRISAR, INC.
By /s/ JOHN P. JORDAN
-------------------------------
Its /s/ VICE PRESIDENT
-------------------------------
-5-
<PAGE> 31
AMENDMENT NO. ONE
AMENDMENT NO. ONE to that certain Lease Purchase Addendum No.
Two dated June 20, 1996, by and between METLIFE CAPITAL CORPORATION "Lessor")
and AMSCAN INC. ("Co-Lessee"), and TRISAR, INC. ("Co-Lessee").
WHEREAS, the parties entered into the Lease as aforesaid; and
WHEREAS, the parties now desire to amend the Lease in certain respects;
NOW THEREFORE, it is agreed as follows:
The Interim Rental Rate is hereby corrected to read as follows: 2.50% percentage
point(s) above 30 Day Commercial Paper
"Early Termination:
Co-Lessees may terminate this lease any time after the sixth year of the lease,
subject to the payment of the unamortized balance of the lease based on a 12
year amortization schedule and the payment of a yield maintenance fee based on a
12 year lease term."
IN WITNESS WHEREOF, the parties have executed this Amendment No. One this 8th
day of July, 1996.
LESSOR: CO-LESSEE:
METLIFE CAPITAL CORPORATION AMSCAN INC.
By /s/ WILLIAM J. STODDARD By /s/ JOHN P. JORDAN
--------------------------------- -----------------------------------
Its /s/ SENIOR VICE PRESIDENT Its /s/ VICE PRESIDENT
--------------------------------- -----------------------------------
CO-LESSEE:
TRISAR, INC.
By /s/ JOHN P. JORDAN
----------------------------
Its /s/ VICE PRESIDENT
----------------------------
<PAGE> 1
Exhibit 10(o)
AMSCAN HOLDINGS, INC.
INDEMNIFICATION AGREEMENT
INDEMNIFICATION AGREEMENT dated as of ______________, ____,
between AMSCAN HOLDINGS, INC., a Delaware corporation (the "Company"), and
_______________ (the "Indemnitee").
Section 145 of the Delaware General Corporation Law empowers
corporations to indemnify persons serving as a director, officer, employee or
agent of such corporation or persons who serve at the request of such
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, and Section 145(f) of
such law further specifies that the indemnification set forth in said Section
shall not be deemed exclusive of any other rights to which those seeking
indemnification may be entitled under any by-law, agreement, vote of
stockholders or disinterested directors or otherwise.
The Company desires to have the Indemnitee serve or continue
to serve as an officer and/or director of the Company free from undue concern
for unpredictable, inappropriate or unreasonable claims for damages by reason of
the Indemnitee's being an officer and/or director of the Company or by reason of
the Indemnitee's decisions or actions on its behalf; and the Indemnitee desires
to serve, or to continue to serve, in such capacity. Accordingly, in
consideration of the Indemnitee's serving or continuing to serve as an officer
and/or director of the Company, the parties agree as follows:
1. Indemnification. (a) The Company shall indemnify, defend
and hold harmless the Indemnitee against all expenses, losses, claims, damages
and liabilities, including, without limitation, attorneys' fees, judgments,
fines and amounts paid in settlement (all such expenses, collectively, "Costs"),
actually and reasonably incurred by the Indemnitee in connection with the
investigation, defense or appeal of any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative, to
which the Indemnitee is a party or threatened to be made a party (all such
actions, collectively, "Proceedings") (i) by reason of the fact that the
Indemnitee is or was a director, officer, employee or agent of the Company or of
any other corporation, partnership, joint venture, trust or other enterprise
(collectively, "Affiliates") of which the indemnitee has been or is serving at
the request of, for the convenience of or to represent the interest of the
Company or (ii) by reason of anything done or not done by the Indemnitee in any
such capacity referred to in the foregoing clause (i). Notwithstanding the
foregoing, "Costs" shall not include any amounts for which the Indemnitee is
actually
<PAGE> 2
2
indemnified pursuant to any directors' and officers' liability insurance or
otherwise than pursuant to this Agreement.
2. Culpable Action.
(a) Notwithstanding the provisions of Section 1., the
Indemnitee shall not be entitled to indemnification if the Indemnitee failed to
act in good faith and in a manner the Indemnitee reasonably believed to be in or
not opposed to the best interests of the Company and, with respect to any
criminal action or proceeding, the Indemnitee had no reasonable cause to believe
the Indemnitee's conduct was unlawful (any such action, a "Culpable Action").
(b) The existence or occurrence of a Culpable Action shall be
conclusively determined by (i) a non-appealable, final decision of the court
having jurisdiction over the applicable Proceeding or (ii) a non-appealable,
final decision of the Court of Chancery of the State of Delaware (or if such a
decision is appealable, by the court in such State which has jurisdiction to
render a non-appealable, final decision). Such determination shall be final and
binding upon the parties hereto.
(c) If a Proceeding involves more than one claim, issue or
matter, the determination as to whether there exists or has occurred a Culpable
Action shall be severable as to each and every claim, issue and matter.
(d) The termination of any Proceeding by judgment, order,
settlement or conviction, or upon a plea of nolo contendre or its equivalent
does not change the presumption of Section 2. that the Indemnitee is entitled to
indemnification hereunder and does not create a presumption that there exists a
Culpable Action.
3. Payment Of Costs. The costs incurred by the Indemnitee in
connection with any Proceeding, including any Proceeding brought pursuant to
Section 2.(b), shall be paid by the Company on an "as incurred" basis; provided,
however, that if it shall ultimately be determined that there exists or has
occurred a Culpable Action with respect to such Proceeding, the Indemnitee shall
repay to the Company the amount (or the appropriate portion thereof as
contemplated by Section 2.(c)) so advanced, including the costs of obtaining a
determination pursuant to Section 2.(b).
4. Notice to the Company by the Indemnitee; Defense of
Proceeding; Settlement.
(a) The Indemnitee shall give to the Company notice in writing
as soon as practicable of any Proceeding for which indemnity will or could be
sought under this Agreement; provided, however, that the failure by the
Indemnitee to give notice as
<PAGE> 3
3
provided herein shall not relieve the Company of its obligations hereunder
except to the extent that the Company is actually prejudiced by such failure to
give notice; provided, further, that the failure by the Indemnitee to give
notice as provided herein shall not relieve the Company from any liability it
might have to the Indemnitee otherwise than under this Agreement.
(b) With respect to any Proceeding as to which the Indemnitee
has given notice pursuant to Section 4.(a) hereof, the Company shall have the
right to participate therein and to assume the defense thereof; provided, that
the Company shall not be entitled to assume the defense of any Proceeding (i)
brought by or on behalf of the Company or (ii) as to which independent counsel
for the Company shall have concluded that there may be a conflict of interest
between the Company and the Indemnitee in the conduct of the defense of such
Proceeding.
(c) The Company shall not be liable to the Indemnitee pursuant
to this Agreement for any amounts paid in settlement of any Proceeding unless
the Company gives its written approval of such settlement. The Company shall not
settle any proceeding in any manner that would impose any penalty or limitation
on the Indemnitee without the Indemnitee's written consent. Neither the Company
nor the Indemnitee shall unreasonably withhold approval of, or consent to, any
proposed settlement.
5. Severability. If any provision of this Agreement shall be
determined to be illegal and unenforceable by any court of law, the remaining
provisions shall be severable and enforceable in accordance with their terms.
6. No Right to Employment or Directorship. This Agreement
shall not entitle the Indemnitee to any right or claim to be retained as an
employee, officer and/or director of the Company or limit the right of the
Company to terminate the employment, officership and/or directorship of the
Indemnitee or to change the terms of such employment, officership and/or
directorship.
7. Other Rights and Remedies. This Agreement shall not be
deemed exclusive as to any other non-contractual rights to indemnification to
which the Indemnitee may be entitled under any provision of law, the Certificate
of Incorporation of the Company, any By-law of the Company or otherwise.
8. Counterparts. This Agreement may be executed in any number
of counterparts, and each such counterpart shall be deemed to be an original
instrument, but all such counterparts together shall constitute but one
agreement.
<PAGE> 4
4
9. Descriptive Headings. Descriptive headings are for
convenience only and shall not control or affect the meaning or construction or
any provision of this Agreement.
10. Modification. This Agreement shall not be altered or
otherwise amended except pursuant to an instrument in writing signed by each of
the parties.
11. Notices. All notices, requests, consents and other
communications hereunder to either party shall be deemed to be sufficient if
contained in a written instrument delivered in person or by facsimile
transmission with electronic confirmation of receipt or if sent by air courier
or first class registered or certified mail, postage prepaid, addressed to such
party at the address set forth below or such other address as may hereafter be
designated in writing by notice given pursuant to this Section 11.:
(i) if to the Company, to
Amscan Holdings, Inc.
80 Grasslands Road
Elmsford, New York 10523
Attention: President and Chief Executive Officer
(ii) if to the Indemnitee, to:
----------------------------
----------------------------
----------------------------
12. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware.
13. Successors and Assigns. This Agreement shall be binding
upon the Company and its successors and assigns and shall inure to the benefit
of the Indemnitee and the indemnitee's spouse, heirs, executors and
administrators.
<PAGE> 5
5
IN WITNESS WHEREOF, each of the parties has caused this
Agreement to be executed as of the date first above written.
AMSCAN HOLDINGS, INC.
By__________________________________________
Title:
____________________________________________
Name:
<PAGE> 1
EXHIBIT 23(a)
INDEPENDENT AUDITORS' CONSENT
To the Stockholders of Amscan Inc.
and Affiliates:
The audits referred to in our report dated April 5, 1996, except as to note 16,
which is as of July 31, 1996 and note 7, which is as of September 30, 1996,
included the related special purpose combined financial statement schedule as of
December 31, 1994 and 1995, and for each of the years in the three-year period
ended December 31, 1995, included in the registration statement. This special
purpose combined financial statement schedule is the responsibility of the
Companies' management. Our responsibility is to express an opinion on this
special purpose combined financial statement schedule based on our audits. In
our opinion, such special purpose combined financial statement schedule, when
considered in relation to the basic special purpose combined financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
We consent to the use of our reports included herein and to the reference to our
firm under the heading "Experts" in the prospectus.
KPMG Peat Marwick LLP
Stamford, Connecticut
December 13, 1996
